This article argues that the general acceptance of volatility constituting a good measure of risk is not appropriate in the context of capital investment appraisal. It is argued that expected loss should be employed as a measure of risk. It is further illustrated how the risk aversion attitudes of potential investors can be taken into consideration in the capital investment decision. The pursuit of return without risk inevitably leads to the transfer of wealth through an underperforming banking system which collaborates with an unregulated financial market seeking low risk and relatively safe returns for the benefit of their wealthy clients. The promise of a ‘return without the risk’ leads financial intermediaries in an elusive direction: the only way to attain this is through directing funding to capture existing assets rather than investing in the real economy to create new wealth.

This article identifies concentration of money and power and loosely regulated financial markets as impeding the efficient allocation of economic resources. The pursuit of return without risk inevitably leads to the transfer of wealth through a failing banking system which collaborates with hedge funds and global wealth management groups, who constantly seek low risk and high returns for the benefit of their wealthy clients. It is further argued that conditions conducive to economic development hardly exist in highly indebted countries and that wasteful finance inevitably brings about financial crises and recessions. The promise of a ‘return without the risk’ leads financial intermediaries in the direction of a quest, since the only way to attain this is through directing funding towards the capture of existing assets rather than it being invested back in the real economy to create new wealth.

Prior to its privatisation in 2008, the Cyprus Development Bank played an important role in the economic development of Cyprus, intermediating international finance from multilateral development banks. This function was subsequently undertaken by commercial banks, which are currently limited by balance-sheet fatigue, however, and lack necessary elements for successfully executing this role. Our analysis shows a current void of institutional capacity in funding growth-bearing projects. Proceeding in a normative way, we recommend reinstalling a development finance agency that will tackle the issues by swapping equity for debt relief.