Sometime last year, a bunch of documents fell off a truck and came into the hands of Mai Life. The documents showed how a range of people, well connected in political and social circles, but with questionable business experiences and skills, were given huge loans by the Fiji Development Bank, and how these businesses collapsed in a relatively short period of time, incurring significant losses for the bank.


The popular sentiment amongst many sections in Fiji is that there has been widespread corruption and favouritism in the FDB with regards the approval of loans.It is a popular sentiment, but it is hard to prove. This is because confidentiality (some say secrecy) lies at the heart of business dealings between the FDB and its clients. Any attempt to analyse or assess how a loan was approved is met by a wall of silence by the bank. The FDB jealously and fiercely guards the confidentiality or ‘secrecy’ of its files. Last year they stood their ground and denied officers of the controversial Fiji Independent Commission Against Corruption (FICAC) from accessing them, and even went to court to seek a judgement on their role and duty to protect the confidentially of their customers whose files were seized by FICAC.Confidentiality of loans and contracts is a credible and respected business practice, but is a Catch 22 in an era of transparency and accountability, particularly for a bank that is not privately owned but belongs to the government, and with the mandate to further the development of the nation. Indeed the power and custodianship of the bank, and the approval of loans running into the tens of millions, lie solely in the hands of the CEO, the Board, and the Minister of Finance. But Mai Life has discovered that some of the people who have been put on the FDB board in the past, have themselves had their loans written off by the FDB.So the public has often reacted with alarm and suspicion when big loans peddled and lobbied for by influential and well-connected individuals get approved, demanding  to see the circumstances and details of the loans, which the bank is unwilling or legally bound not to furnish.Some of the more controversial loan approvals by the FDB include the $12 million to the Hilton Fiji in 2003 that was lobbied for and brokered by individuals close to the SDL political party, when the then chairman of the FDB was a senior and influential member of the SDL management. The public then was outraged by what it suspected as a blatant act of collusion, which was denied by the people involved. FLP Shadow Finance Minister at that time, Ganesh Chand, while moving a motion on corruption in the lower house had alleged that the sacking of the then bank’s general manager, Isoa Kaloumaira, was linked to the bank’s decision to approve the loan. Chand further alleged that a company with close ties to the SDL party and with links to the then FDB chairman, had made hundreds of thousands of dollars in helping Hilton secure the loan. Former FDB general manager Isoa Kaloumaira was alleged to have objected to certain loans being approved by the Board, and media reports speculated at that time that Kaloumaira was removed from his position after he objected to the Hilton loan. Mr. Kaloumara has however maintained his silence on the matter, and the people involved have maintained that the loan was approved purely on merit. In another case, Labour party Senator Dr. Atu Emberson Bain raised in the upper house in 2004 her concerns with regards a loan the FDB gave to a company set up by the Native Lands Trust Board and locally-born computer millionaire, Ballu Khan. Dr Atu Emberson-Bain questioned how the taxpayer-owned bank could explain an unsecured loan of 2.1 million US dollars to Pacific Connex Limited and whether a bank director, Steve Pickering had resigned in protest. But answering the question on behalf of the government, then Attorney General, Qoriniasi Bale said the Development Bank could not provide such information because of the bank-client confidentiality clauses. Mr. Bale said on whether a director resigned over the loan, was up to the person concerned to disclose that. A FDB source told Mai Life’s that to his knowledge, the Pacific Connex loan was initially turned down but was later approved by the Board. He alleges, but cannot prove political interference in the matter, but says that a board member did resign in protest.Another FDB controversy was the fisheries scheme for indigenous Fijians which saw heavy losses and fishing boats handed out without much scrutiny. While the idea behind the scheme was noble, it was the way it was managed that raised outcry and allegations of corruption.More recently, millions of dollars of FDB injection towards the Momi Bay Resort project came under public scrutiny after some of the major partners started to experience financial difficulties that threatened the viability of the project.    Currently, a high profile case that is before the courts, is how certain well connected individuals got loans ahead of provinces to buy shares into the Fijian Holdings Ltd, a company set up in 1984 to accelerate Fijian participation in the economy. Fijian Holdings shareholders include Provincial Councils, the Native Land Trust Board, the Fijian Affairs Board, Tikina and village groups, Fijian co-operatives, and individual Fijians and family companies.

The focus of this article however is on bad loans, loans that are not repaid back to the bank because the business has collapsed, and in particular the basis in which some of these loans were approved and given out in the first place.
For former head of the FDB Laisenia Qarase and current CEO Tukana Bovoro, bad loans are a painful but necessary risk particularly as the FDB is a development bank with the principal role to encourage the development of natural resources and enterprise, and of being the financial arm of the Government’s development plans.
 “I would not like to see FDB without bad loans, because it would mean that the
Bank is not taking enough risks and could be failing to play its developmental role,”
says former general manager and deposed Prime Minister, Laisenia Qarase.
The confidential papers received by Mai Life depicted the nature of some bad loans, its applicants and the conditions which they were granted. The papers we received were of some loan applications gone wrong from the early 1990s to as far as 2004.
To establish the authenticity of these papers we asked FDB CEO Tukana Bovoro about some of these cases and if they constituted a form of corruption and favouritism, although they largely occurred well before his time at the helm.
Initially Mr. Bovoro challenged us to give specific examples of favouritism, so we sent him the case numbers of the files that were leaked to us. After checking up on the files, Mr. Bovoro chose to question the motive of those who leaked the papers to Mai Life rather than commenting on the specific cases.
“The FDB has a hard enough time trying to do its business in the current environment and wonders at the intention of these people leaking this type of information to you,”said Bovoro.
He admitted though that bad debts will continue to be a challenge.
“For the record though after we write off loans, we continue to pursue legal action against customers until we have sold off our securities and they are adjudicated bankrupt.”

Mai Life will not name those involved due to the sensitivity of the issues, as well as our inability to verify all details given the bank’s confidentiality clause. But of the six questionable cases Mai Life looked at, the most significant was that of the wife of a political figure being approved a loan of $299, 800 to purchase an executive residential property in 1994. The bank paper reveals that through the lax attitude of client, poor management skills, the economic downturn and continuous repair and maintenance, they had to write the loan off. “Arrear reminders, personal follow-ups and moratorium of repayments went unheeded,” they wrote. “The project is now defunct and recovering outstanding debt is impossible. The client is 50 years of age, unemployed with no fixed income and her children are looking after her welfare.” The property was eventually seized and sold off.
Interestingly the same a client above who was approved the $299, 800 loan in 1994 was also involved with her husband and others in a failed business housing cooperative initiative in 1989, that the FDB also financed, which slowly deteriorated due to amongst other things misuse of rental proceeds. The loan approved for that 1989 business initiative was $120,000.

Yet another $450,000 was approved in 1992 by the FDB to take over an earlier real estate debt the same partners above incurred from the now defunct National Bank of Fiji for two properties located in Tamavua and Namadi.
Furthermore, another $80,000 was approved to the same partners in May 1993 to purchase 100,000 class “A” shares in Fijian Holdings Ltd.
The ease with which the above applicant and her husband got their loans, a total of over half a million in less than 6 years, is contrary to the experience of many others who have had to struggle over long periods to meet the FDB conditions and get their applications accepted.
FDB’s investigations into the housing schemes in the above cases state that the cause of failure to repay debts was due to poor management skills, economic downturn and the overall lax attitude and commitment of client to the project. A high turnover in tenancy due to the below standard conditions in building was also a major factor.

What needs to be assessed however is, when the project was approved, were there any real investigation into the viability of the project and the client’s ability to operate it?
These clients were connected to top political figures of the time, and seemed to take the loans they were given for granted.
It was also revealed to Mai Life that in 2006, three of the board of directors nominated to manage the affairs of the FDB were themselves previous bad debtors of the FDB, raising questions of the integrity and standards of the institution.
Another significant element about many of the bad loans that was brought to our attention was that government had somehow according to the papers, guaranteed these loan applications and therefore held responsible for paying back the amount they had guaranteed.
Mai Life sought answers from both current and former FDB heads, as well as Ministry of Finance, as to under what conditions does government guarantee an individual or company’s loan?
Current CEO Bovoro did not answer that question, and former general manager Qarase was not aware of that ever happening.
Mr. Qarase said he had no knowledge of cases or under what circumstances Government guarantees an  FDB loan.
However the papers Mai Life received state that for a number of people, government guarantees was part of the loan application process, and that government was held liable to pay them back. The issue of government guaranteeing a loan is deemed illegal under the constitution, unless approved in parliament.

In cases where individuals receive Government guarantees for their loans, it is stated under the Constitution under Section 181 that: “The Government must not guarantee the financial liability of any person in respect of a loan or otherwise unless the giving of the guarantee is authorised by the House of Representatives in accordance with conditions prescribed by law.”
Sources from the Ministry of Finance told Mai Life that government guarantees were a common practice in the past but a stop was put to it in 2004 because many government guaranteed loans were the one’s being written off.
Mai Life approached an individual whose company went into receivership in 2004, but the person in question claimed he had no idea how his loan application had been given a government guarantee of over $30,000. He said the authenticity of the papers we received was dubious.
“I have no idea what that means, I certainly do not have any knowledge of that government guarantee for my loan nor did I ever include it in my original application to the FDB,’’ he said.
“Maybe it is under the SCARF agreement, but these papers and what is stated here beats me,’’ he said, questioning the reliability and authenticity of the papers we received.
SCARF is an affirmative action for indigenous Fijians and Rotumans which began in 2002. The Government provided $4.5 million for the SCARF program assisting the Tourism, Fisheries and Forestry industries and this is ongoing.
The FDB website states; “The initiative is to assist eligible nationals who are unable to meet the Bank’s 35% of the total project cost (TPC) equity contribution. Successful applicants enjoy an interest free loan for up to 25% of the total project cost. Their equity contribution is limited to 10% of the project cost and interest is charged at 8% per annum.”

These complications aside, the ease at which some people received their loans without adequate safeguards does raise questions about favouritism and possible corruption, as many others have found it difficult to access a loan from the FDB.
Last year, a disgruntled man hoping to make a life in the fisheries industry attacked the Fiji Development Bank for discriminatory action.
In an article in the Fiji Sun, 17 July 2007, Ro Alipate Baledrokadroka demanded the FDB pay back his $33,000 deposit for a loan of $150,000 for a 69-tonne long –line fishing vessel in 2002 under the Affirmative Action Plan.
It seems that he discovered later that the bank did not make the same demands of others who had asked for a loan under the same action plan.
“I have learnt that the other Fijians who took a loan under the same scheme did not pay any deposit for their loans,’’ he told the Fiji Sun.
The bank has since taken the boat back selling it later to another fisherman.
The FDB did not comment on the issue above, again stating that the customer’s affairs cannot be discussed in public unless the customer gives written approval to the FDB to release information.
Critics have asked though if confidentiality has become a convenient cloak to hide behind, but the case is amongst many stacked up over the years against the FDB.
Mr Baleidrokadroka’s issue is not unique.
Our constant digging at the FDB met a number of obstacles. Mai Life had to go through a labyrinth of processes, and had to constantly follow up just to receive simple and rather unhelpful answers from the FDB. We were initially granted access to the Library but then denied access once it was discovered what we were after. Granted that bank officials are busy people, questions sent in took more than three weeks to answer.

Combating the issue of bad loans

How then has the FDB tried combat the occurrence of bad loans in light of the ever changing social, political and economic environment?
FDB Chief executive Tukana Bovoro says that no financial institution goes out and deliberately writes bad loans.
“We are in the business of risk management and with this come the real possibility that some loans an institution writes will go bad. Loan write-offs are part and parcel of the business of development banking.”
He added that mismanagement, pilferage and the changing economic climate were contributing factors towards the occurrence of bad loans.
However, the documents received by Mai Life raises serious issues on the type of loans written off and also the “conditions” under which they were approved in the first place. For a long time now, public perception of the FDB was that it operated under the tag of the “it’s who you know” or those with political affiliations to the government of the day.

Qarase who introduced successful initiatives as head of the FDB a decade ago says this criticism of favouritism is not fair and as far as he knew had no valid basis. 
“I am not aware of this allegation.  In any case a person’s political affiliation is never
disclosed in loan applications.”
“Loan applications are considered on merit and the processing of applications is always based on strict guidelines and standards.”
“There are also “checks and balances” in the loan processing phase which would discourage favouritism.”
Bovoro says like all financial institutions, FDB regularly go through their loans to determine which ones are likely to create a problem for them and once these are identified, take the necessary action to try and prevent the loan from deteriorating.
The FDB has since 1975 made substantial commitments to the national effort of promoting the involvement of indigenous Fijians in business.

The Commercial Loans to Fijians Scheme was introduced in 1975 to encourage Fijians in business. Unfortunately, a lot of losses were seen here due to bad management and changing economic and political conditions. Qarase says he introduced radical changes during his tenure as FDB manager.
“One of the notable policies during my term as Managing Director of FDB was the diversification of the Bank’s loans portfolio,’’ he said.
“That policy involved a shift in lending to the commercial and industrial sectors. Increased lending to these sectors ensured the Bank’s financial viability, as well as a more rapid development of commercial and industrial activities.”
This was a departure from its initial focus on the agricultural sector.
Early this year however, Finance Minister Mahendra Chaudhry made a directive for the FDB to revert back to its original core business to promote and stimulate the development of natural resources and service more the needs of the agriculturalsector. Qarase however disagrees with this change.
“The facts are that the agriculture and small business sectors present more risks to FDB. 
Qarase says more losses occur in these sectors, whereas loans to the corporate (commercial/industrial) sector and home loans are more successful, less risky and produce more profits.
“Loans to the commercial/industrial sectors ensure the financial viability of the Bank.”
“A shift of lending focus to the agriculture, natural resources and small business sectors will place the viability of FDB at risk.  This risk will be far greater if commercial/industrial lending is reduced significantly.  A proper mix in the loans portfolio is absolutely essential in any Bank’s operations.  The right mix is often difficult to achieve.” 

“A major shift to agriculture and small businesses could spell disaster for FDB in the longer term.  It would normally take 5 to 10 years for bad loans to “come home to roost,” Qarase added.
In November, 2007 the Standard and Poor Ratings services lifted the outlook of the FDB to stable from negative.
Standard & Poor’s is an essential part of the world’s financial infrastructure and has played a leading role for more than 140 years, providing investors with the independent benchmarks they need to feel more confident about their investment and financial decisions.
Qarase says the issue of bad loans at FDB is not the critical question.  What is noteworthy is that the FDB has managed their bad loans well.
“That is why the FDB has never suffered an operating loss since its inception.  I would not like to see FDB without bad loans, because it would mean that the Bank is not taking enough risks and could be failing to play its developmental role,” Qarase said.
“The important issue is the effective management of the Bank’s loans portfolio to ensure that bad loans do not result in operating losses.”

Education

Bovoro states that the challenges faced by the FDB are many and varied.
But he firmly believes that education will help address the issues that threaten local entrepreneurs.
“The FDB Management believes that a lot of the issues that can help people in Fiji to become better entrepreneurs are generational and can be resolved if the major stakeholders agree that in order for the country to achieve real growth then we must as a nation invest in education as a start.”
Many locals hoping to start up their businesses have the general know how essential in running a business.
But when it comes down to the crunch time of business, a persons’ ability to make sound financial decisions or develop strategy is dependent upon their level of education and experience.
This is where many lose out in the cut throat environment of business.

For others, cultural and family demands become the intruding factor in trying to ensure the business does not suffer from operating losses.
Learning to say no in the face of living communally is a challenge many Fijians face in trying to run a business.
This also is greatly felt in the agricultural sector where the bank suffers the most losses.
Education Bovoro believes is the key to helping address these issues.

The Bank is faced with the task of reconciling a history of colonisation and racial discrimination with the forces of globalisation and drive for economic development.
All of these in the face of an ever changing political front. Mr. Bovoro stated that the bank has been through very tough times in the past few years.
Qarase notes that one of the serious challenges facing the Bank has always been competition from commercial Banks and other lending institutions. 
To compete effectively the FDB has to be innovative, aggressive and customer oriented. 

“The fact that the FDB has always achieved operating profits since inception is an indication that the Bank can compete successfully in a highly competitive market,’’ says Qarase.
The Fiji Independent Commission Against Corruption (FICAC) told Mai Life their investigations into FDB were for other reasons and did not touch the issue of ‘bad loans’.
“Hence we will not be able to give you any information that might be useful for your story,” they wrote.