M4P and Financial Development

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  • 1. Titel: Powerpoint MustervorlageEidgenssisches Departement fr auswrtige Angelegenheiten EDADirektion fr Entwicklung und Zusammenarbeit DEZAM4P & Financial Sector Development:Looking at financial componentsof agricultural/rural programmesDiscussing good and bad practicesJane Gisin, Peter Beez, Hans RammFocal Point e+i
  • 2. 2M4P Market System (Players & Functions)
  • 3. 3Interconnected Market
  • 4. 4Key M4P PrinciplesFacilitation role: M4P means avoiding direct delivery of services by theproject: so dont even think of providing loans or otherfinancial services directly by project!!! This is work for specialized professional organizations,finance is complicated!! Facilitate initiative of market players, local orinternational, whatever is necessary
  • 5. 5Key M4P PrinciplesStrengthening / deepening of market development: Support of existing, ideally the most suitable financialintermediaries from the viewpoint of SDC target groups(e.g. social mission, professional capacity, financialleverage) Support policy-makers in setting right incentives throughregulation (change systems!)
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  • 7. Areas for Smart Subsidiesin Financial Inclusion Facilitate access for all to basic services/common goods(financial services) by capacitating financial intermediaries Creating new markets (green fielding) Improve markets (depth, breadth, linkages) through promotion oftransparency, responsible finance practices, client first, bestpractice management, competition7 Strengthening social capital and financial literacy Support to the development of policy, regulatory andsupervisory framework Foster the infrastructure of the financial system (networks,associations, rating agencies, credit bureaus etc.)
  • 8. Dos and Donts for Smart Subsidies8Dos Public goods (e.g. financial education, research,infrastructure, regulation) Capacity building at all levels Subsidies to subjects instead of objects wherepossible
  • 9. Dos and Donts for Smart Subsidies9Dos Assure ownership of partners Performance-based Cost sharing Risk sharing Leverage
  • 10. Dos and Donts for Smart Subsidies10Donts No interest rate subsidies No long-term subsidies No crowding out of private initiative No excessive subsidies
  • 11. SDC PCM Manual EssentialsImportance of Context Analysis (in-depth as usual in M4P): What information does already exist? What information do we need to resolve bottlenecks in thefinancial sector? Important steps to be taken into consideration are:(1) Financial Sector Analysis(2) Target Group Analysis(3) Institutional Analysis(4) Framework Conditions at Macro Level(5) Risk AnalysisSDC Contract Templates for Financial Intermediaries: Performance-Based Grant Agreement Loan Agreement Guarantee Agreement11
  • 12. Key MessagesIf you do an FSD project or just an FSD part in yourPSD or any other project:No direct delivery of financial services!! Facilitate change of systemsInvolve professionals to developAnd: Have a look at SDCs Policy for FinancialSector Development; then you will beconsistent with M4P principles and do aprofessional job12
  • 13. ResourcesSDC - shareweb on financial sector development:www.sdc-employment-income.ch/en/Home/Financial_SectorSDC Development Aid and Subsidies An ArtSDC Financial Sector Development PolicySDC PCM Manual for FSDCGAP Pink Book13
  • 14. Additional Slide: SDC Policy KeyAreas of FSD Rural Finance: agricultural + non-agricultural activities coping with high transaction costs in rural areas coping with high agricultural risks of wheather, disease meeting medium- to long-term credit needs Microfinance: poor households (women!) + micro enterprises expanding breadth: how reaching ultra poor (graduation) maintaining social mission despite commercialisationInsurance Life and health: microinsurance for low-income peopleCasstrophic: reduce livelihood risks caused by naturaldisasters Crop/animal insurance: allows for more risk taking, moreinvestment, more income 14
  • 15. 15Additional Slide: Promoting retailcapacity: Up-ScalingInstitutional capacity-building of microfinance providersby supporting: rapid expansion in breadth and depth implementing social mission (avoiding mission drift) transformation into regulated financial institutions "green field" as special case- technological innovation with palm pilots + reaching alsovery poor at SafeSave / Bangladesh- evolution from credit funds into credit & savings associations+ establishment of Albanian Savings & Credit Union- rural windows for credit & savings co-operatives in Equator
  • 16. 16Additional Slide: Promoting retailcapacity: Down-ScalingMotivate banks to serve low-end market segments: introducing methodologies and banking technologies on how to targetpoor client households, farmers and small enterprises (research, productdevelopment, MIS, service company model) efficient approach in expanding "access" where banks exist and bankmanagement perceives these new client groups as valuable (profitable)clientele can offer different financial products at better conditions than MFIsbank can better diversify risks (rural banks with development mission andprofessional management)- Medium- to long-term refinancing combined with TA in cash-basedlending methodologies, product development (e.g. instant loans withdisbursements in 48 hours; house improvement loans) in Balkancountries by European Fund for Southeast Europe (www.efse.lu)
  • 17. 17Additional Slide: Promoting RetailCapacity: LinkageBringing self-help groups, theirassociations and other semi-formalmicrofinance providers together withformal financial institutions: facilitate reducing of risks andtransaction costs for clients, clientsorganisations and formal financialinstitutions Self-Help Group Model: collaborationwith NABARD / India
  • 18. Additional Slide: SDC PCM Manual Evaluation LogicPlannedOutputsPlannedActivitiesPlannedInputsExpectedOutcomeAchievedOutputsImplementedActivitiesAppliedInputsDemandAchievedOutcomeImpactImplementationEffectivenessRelevanceAdequacyEfficiencyPlanningContext-analysisEvaluationStrategicPlanningOperationalPlanningResult-EvaluationImpact-Assessment18