Development Bank of Kazakhstan Independent Director on Risk-Taking, ESG, and Investments

ASTANA—Marcia Favale, a member of the board of directors and an independent director at the Development Bank of Kazakhstan (DBK), spoke to The Astana Times, sharing her career story, first encounter with Kazakhstan, experience with the country, and why people should applaud those who fail big.

Marcia Favale. Photo credit: screen shot from The Astana Times YouTube interview

Founded in 2001, DBK’s mission is to develop the non-resource economy sector. It aims to finance manufacturing projects, including import substitution and export potential, assist in empowering the private sector, and extend the resource base for financing, among other objectives.

Favale, who first flew to Kazakhstan in 2001, has served as an independent director at the DBK since 2015. She said it was a “love at first sight” with Kazakhstan. 

She was a senior advisor to the Prime Minister of Kazakhstan between 2009 and 2013. She also led the restructuring of BTA Bank, Alliance Bank, and Temir Bank. In 2022, she published a book called “Risk, Recovery, and Empowerment: The Kazakhstan Bank Restructure Case Study.”

I have seen the development of Kazakhstan post-Soviet Union, and it was just a miracle in the region and still is. This is still one of the most important economies in the region,” said Favale. 

According to her, Kazakhstan has been a “beacon of banking reform” in the region of Southern Europe, the Middle East, and Africa. 

Graduating from New York University with a degree in political science, Favale built a career in finance and investment. Prior to founding her own company, she worked at UBS, Merrill, Bankers Trust, Brevan Howard, and Advent Capital. “I found it fascinating to work in investment banking for emerging markets,” she said. “It was about understanding the entirety of the culture, the policies, the government, the flows of money coming in and out, and how that impacts value from a government or state to an actual company.”

Favale also participated in devising the People’s IPO program. While it did not materialize in its initial format, Favale stressed that such programs should target two important goals: giving people hope and nurturing a robust domestic capital market. 

“We have to create hope in the population. People have to aspire for a better life, a life they can control, and a life they can share in,” she added. 

She emphasized that all economies need to focus on resilience.

Favale noted that developing a robust domestic capital market fosters resilience. Such a market, in turn, incentivizes venture capitalism and entrepreneurs, which are ultimately important for diversifying the economy. 

Strategic goals of the DBK

Favale described DBK’s role in the country as a “financial influencer.” Founded in 2001, DBK aims to have a significant impact on the nation. “As an influencer, we need to have an impact. Since we are here to help the country, we have to have a positive impact. (…) What is our mandate? In summary, it is to diversify the economy outside of those that are extraction,” she said. 

According to data published on the bank’s official website, as of Dec. 31, 2023, DBK’s equity capital reached 886.5 billion tenge ($2 billion), and assets were worth 4.3 trillion tenge ($9.5 billion). As of the same date, DBK has approved and is financing 182 investment projects with a total project cost of 11.8 trillion tenge ($26 billion). In 2023 alone, DBK funded 42 projects, with financing reaching 748 billion tenge ($1.6 billion).

In terms of the gross loan portfolio, 29.39% is allocated to the metallurgical sector, 19.48% to the production of refined petroleum products, and 13.05% to the mining industry.  

The bank also supports increasing the role of the private sector in the national economy, fostering private entrepreneurship and innovation. “Based on the numbers in 2023, over 70% of our loan book has to do with private companies. That’s the first frontier in investing in private, not only public, projects that impact the country,” said Favale. 

She stressed the importance of “smart” capital allocation. “How have we done that waterfall – into private projects? We also need to focus on certain key areas. We can’t invent a sector yet. We have to look at the industries that exist where there is a competitive advantage and a need for its development with government money and with the money that we get from the market as a triple B-rated entity,” she said. 

ESG and meritocracy

She stressed the critical role of ESG (environmental, social, and governance). DBK is making significant strides in integrating ESG principles into its operations. Favale emphasized it takes considerable effort to build the necessary infrastructure.

In December 2023, Fitch assigned DBK an ESG entity rating of 3 and an entity score of 60. “It is an impressive start for an entity like the Development Bank that has a legacy. Of course, the legacies are not looking at ESG and the standards that the world looks at,” she added. 

Highlighting the importance of ESG, Favale pointed out that the market for sustainable development and ESG investments is around $35 trillion, with green finance accounting for nearly $4 trillion. She stressed the need for Kazakhstan to attract this type of investment. 

Favale added that to date, DBK has financed  nine renewable energy projects and is committed to continuing its focus on such initiatives. However, she cautioned that these projects must be approached smartly, with rigorous analysis, to ensure they make sense on a risk-reward basis, even for a development bank.

Favale also noted how DBK’s culture has changed over the years, with a focus on meritocracy, inclusivity, and promoting internal talent. Since 2018, the bank has promoted a significant percentage of its staff internally, with figures reaching as high as 50% in recent years.

“Institutional knowledge should be valued and praised. Loyalty should be valued and praised. Instead of replacing people so that you can bring in your friends, why don’t we just look at the people who are already good assets, good professionals, train them, and promote them?” she said. 

Favale said the bank also champions women in leadership, with 59% of staff being women and 51% of leadership positions held by women. 

“We also say on our website that we welcome people with physical disabilities who can do their work,” she added. “Together with other independent board members, we have changed the culture to be more accessible. We do free training and workshops, and we do strategy meetings with everyone in the bank.”

Forward-looking agenda

In terms of foreign investment, Favale draws on her experience on the board of Kazakh Invest to outline the country’s forward-facing agenda. 

“I think that the government has an agenda of being forward-facing, which I think is important. I think that having foreign direct investment is always important for every country, but I don’t want to lose sight of how equally important it is to develop domestically,” said Favale. 

“I keep trying to make sure that we understand that we have to create our money managers. We have to create our entrepreneurs. We have to incentivize them internally,” she said. 

“I think the government is active. This government doesn’t hide – it is active in roadshows, workshops, and conferences,” she added.

She stressed that corruption indexes, tax regimes, and the registration process are always crucial aspects that every investor is considering. Improving these areas is essential for attracting more investment. Favale also suggested that the government must balance investor demands with the reality of the local environment, ensuring a fair risk return.

“There is a consciousness. I remember President Tokayev talking about how important entrepreneurship is, especially women’s entrepreneurship. He is forward-facing,” she said. 

Applauding people who fail big

However, Favale also addressed the need to develop a culture of risk-taking.

We have to applaud people who fail big,” she said. “I am actually putting out a book that says, let’s actually incentivize the everyday innovator, not just the unicorns.”

She noted that big failures are essential for achieving significant successes. This mindset shift is critical for fostering innovation and entrepreneurship in the country. “This is my mantra that genius can come from anywhere and everywhere,” she said. 

“We have to allow people to fail big, and it is not shameful. (…) I think a real culture of investing in entrepreneurs here and applauding failure would be a game changer. We can’t be a society—like many others, not just Kazakhstan—where failure leads to being looked down upon. Someone who tried earnestly and had a product or a business plan that didn’t work out probably has a better chance to succeed next time.” 

The full interview with Marcia Favale is available on The Astana Times YouTube channel

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