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M4P and Financial Development

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  • 1. Titel: Powerpoint MustervorlageEidgenössisches Departement für auswärtige Angelegenheiten EDADirektion für 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 don’t 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!)
  • 6. 6
  • 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 Don‘ts 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 Don‘ts for Smart Subsidies9Dos■ Assure ownership of partners■ Performance-based■ Cost sharing■ Risk sharing■ Leverage
  • 10. Dos and Don‘ts for Smart Subsidies10Don‘ts■ 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 systemsInvolve professionals to developAnd: Have a look at SDC’s 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 commercialisationInsurance Life and health: microinsurance for low-income peopleCasstrophic: 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

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