Economic development can be directed into emerging markets by promoting private sector engagement. By providing technical assistance to companies, industries, and governments, development finance institutions seek to help grow the private sector in emerging markets by improving the investment climate, increasing access to finance and basic infrastructure, and promoting sustainable businesses.
Technical assistance (TA) seeks to promote the economic, social and political development of emerging markets through targeted interventions at both the macro and micro levels. Through projects and programmes that mitigate systemic market distortions and failures, address competitive inefficiencies, simplify cumbersome regulations, and improve access to goods and services, TA programmes can help beneficiary countries make progress towards the Millennium Development Goals (MDGs).¹
Introducing TA programmes that enhance the capacity, skill and behaviour of private sector actors catalyses social and economic development: in addition to providing new capital investment, private entities promote innovation and entrepreneurship, create new jobs, and open up new markets. Advisory programmes create attractive conditions for local and foreign investment and help emerging economies alleviate poverty.
Although the primary objective of TA programmes has remained the same over the past fifty years, the nature of involvement has evolved from feasibility studies of development projects and management of their implementation to a much broader approach that incorporates capacity-building, legal and regulatory reform, environmental and social standard-setting, and economic development. According to the World Bank Institute, this transition has occurred over three generations; the first generation in the latter half of the twentieth century was largely supply driven, with donor countries mandating the transfer of knowledge and technologies. At the turn of the century, TA began to focus on capacity development through participative, strategic planning and best practice models. Today, a third generation is surfacing that integrates contextual frameworks and change dynamics into longer term engagements that address the needs of multiple stakeholders.
As TA programmes have evolved, so too have the relationships between the parties concerned. Today, jointly-implemented projects bring together a variety of players, ranging from development institutions to public and private actors. As programmes progress, lessons learnt are reviewed and reincorporated into subsequent project designs.
Providing Technical Assistance: IFC’s Advisory Services
In recent years, Advisory Services have become an important pillar of the International Finance Corporation’s (IFC) operations and serve as the primary mechanism for IFC’s interventions in both the poorest countries and those with the most challenging business environments. This importance is reflected by the significant growth in TA programming: between 2001 and 2010, expenditure for Advisory Services grew more than tenfold, and staffing increased by a factor of six. Today, nearly 40% of IFC staff is engaged in designing and implementing almost USD 300 million per year in Advisory Services internationally.
IFC’s Advisory Services programmes are organised around four business lines that provide targeted advice and training. The Access to Finance (A2F) line helps increase the availability and affordability of financial services to households and micro, small and medium enterprises (MSMEs), while the Investment Climate line helps governments implement reforms that encourage investment and foster competition and growth. The Public-Private Partnerships line assists governments to structure public-private partnership transactions in infrastructure and other public services, and the Sustainable Business line promotes cross-cutting environmental and social performance standards.
Closing the global gap on financial services
Poor financial infrastructure in many developing countries restricts financial institutions from expanding their service offerings to underserved segments of the population. Key financial elements in developed markets often do not exist or are less advanced. This infrastructural weakness, together with limited access to finance, means that the global gap in access to financial services remains a challenge. Today, there are over 2.5 billion unbanked individuals and more than 300 million MSMEs with a credit gap of over USD 2 trillion across the globe. Through its A2F Advisory Services, the largest of IFC’s TA programmes, IFC works with financial institutions and regulators to improve financial infrastructures and increase access to finance for the unbanked.
IFC runs a variety of programmes that seek to improve access to finance for SMEs and business clients. For example, many farmers do not have access to seeds and other inputs when their credit risk is adjudged too high by banks. As one way to address this situation in Eastern Europe, IFC launched the Ukraine Agri-Insurance Development Project to develop well-designed insurance products and reduce the banks’ risk. In the initial stages, the project surveyed banks and input suppliers to understand lending practices, credit risks, collateral requirements, and staff capabilities. In February 2010, a training programme was launched to help banks understand the advantages of insurance as a risk management tool and to use it more efficiently when providing loans to agri-business clients. In June 2010, the leading agri-finance provider in Ukraine contacted the project to play a coordinating role in ‘Insuring the Field of Ukraine’, a bank-initiated project that seeks the acceptance of crop insurance as collateral for farm lending. When realised, the anticipated results of this project include lending to at least 150 farms in six different regions of Ukraine, amounting to USD 36 million in seasonal credits. Spin-offs from this programme are likely to occur as other banks take notice of the work and adopt similar strategies for their lending programmes.
IFC also works with bank and non-bank institutions to increase access to financial services for micro and retail customers through programmes in microfinance, housing finance, retail payments, insurance and responsible finance. In Kenya, for example, IFC launched Kilimo Salama (‘Safe Agriculture’) in partnership with the Syngenta Foundation for Sustainable Agriculture, Safaricom and UAP insurance. Kilimo Salama, an insurance product to cover farmers’ inputs in the event of drought or excessive rainfall, is index-based, with payouts determined by annual comparison to historical, regional rainfall patterns (when rainfall amounts do not reach the index, payouts are made according to the magnitude of the deviation). This represents a large departure from traditional indemnity-based insurance, which disburses based on crop damage and can require cumbersome processing times.
In addition, as the first microinsurance product to be distributed and implemented over a mobile phone, Kilimo Salama increases affordability and convenience for both farmers and insurance agents, as it reduces the cost of implementation. To date, the project has shown remarkable growth: from the piloting phase in 2009 to June 2011, the number of farmers insured grew nearly 100-fold, from 200 to 19,000. To increase its outreach, in April 2011, Syngenta Foundation and UAP Insurance entered into a partnership with One Acre Fund, an organisation that distributes seed and fertilizer on loan and trains the rural poor to achieve better harvests by using a ‘market bundle’ method (Weather Index Insurance is bundled together with the loan to protect the farmers in the event of unfavourable weather conditions).
Likewise with microfinance – IFC provided over USD 61 million in advisory services to foster the growth of microfinance institutions (MFIs) globally. These projects have strengthened existing MFIs; helped commercial banks downscale to serve the micro and small business segment; supported the transformation of mature MFIs from non-governmental organisations to regulated, deposit-taking institutions; and established greenfield MFIs in frontier markets. As of June 2010, IFC’s MFI partners had an outstanding portfolio of nearly 8.5 million in micro loans, worth nearly USD 11 billion.
Recognising technology’s potential to achieve scale, depth and efficiencies in financial services, IFC has developed a growing body of experience in innovative delivery channels, such as mobile phone, card-based and point-of-sale transactions. IFC’s portfolio in this field includes six investments with dedicated e-payment service providers, in addition to investments with financial intermediaries and mobile network operators offering mobile wallets such as Bank South Pacific, Tameer Bank and MTN Group. In parallel, IFC has heavily invested in the Mobile Money Toolkit©, which is publicly available and includes proprietary tools and materials that help clients develop inclusive, appropriate mobile business models.
To expand access to financial services in Afghanistan by improving financial infrastructure, IFC is working with the World Bank’s Financial Sector Strengthening Project, to provide advisory services to help the Afghan Central Bank establish credit information-sharing systems that provide lenders with efficient risk assessment tools and a secured lending framework that includes a collateral registry for movable property. In 2009, Afghanistan put these infrastructures into law, and these legislative acts helped increase Afghanistan’s ‘Doing Business Getting Credit’ ranking by more than 50 points.
The need for strong evaluation mechanisms
While the specific objectives of TA programmes vary from one institution to another, the overarching goal is the same: to increase the beneficiary’s ability to become more productive, more competitive and more attractive to foreign investment. Often these achievements are reflected by improvements in global ranking systems.
Although TA programmes can facilitate growth, there is a limit to their impact when applied alone. Advisory work with individual firms can be more effective when an investment relationship strengthens client commitment to implement the advice, and provides resources to enable the advice to be implemented at scale. Recognising these synergies, the World Bank’s Independent Evaluation Group has found that advisory projects tend to deliver stronger development results when associated with an IFC investment. As such, IFC has more purposefully aligned its Advisory and Investment services in recent years.
Achieving Development Impact
Even where quantifiable goals are set and pursued, the efficacy of TA programmes is often difficult to measure due to the intangible nature of knowledge management and capacity-building: robust monitoring and evaluation mechanisms that measure both outcomes and outputs are necessary.
Development effectiveness is a guiding principle of IFC’s work. Building on its best-practice evaluation system, IFC has added tracking of development results through the project cycle for its clients, through its Development Outcome Tracking System (DOTS) for investments and its Development Results Measurement Framework for advisory projects.
IFC’s results measurement activities build on its ex-post evaluation framework and allows for real-time feedback into project design and implementation. By using standard indicators, IFC can aggregate results, capture development impact, and compare development effectiveness across regions and industries. In addition, IFC rates the value-addition of its intervention by determining whether the organisation played both an innovative and an irreplaceable role in providing TA.
By integrating this results-tracking fully into their work at every step in the project cycle, IFC project teams actively use this data to articulate expectations, identify benchmarks, monitor progress, and rate the project’s development outcome when appropriate (Figure 1 and 2).
In 2009, IFC investments helped provide 2.2 million jobs, treat 7.5 million patients, educate 1.4 million students, and extend 10 million loans worth USD 110 billion to MSMEs. Likewise, IFC’s Advisory Services programmes helped governments design and implement 70 reforms to their business environments, helped nearly 10 million people receive new or improved infrastructure, and enabled MFIs to provide USD 3.5 billion in financing to 3.8 million micro-enterprises.
Developing a strategy for achieving tangible results
Every year, these development results feed into IFC’s strategy process and, ultimately, its corporate strategy. Most recently, informed by several years of tracking development results, IFC decided to adopt a set of corporate goals that provide an overarching framework for strategy-setting, express IFC’s ambitions in terms of tangible targets, and provide credible metrics for measuring progress in reaching those targets. These IFC Development Goals (IDGs) are inspired by the MDGs and provide targets for reach, access, or other tangible development outcomes designed to measure clients’ contributions in strategic priority areas as a result of IFC support. The IDGs complement IFC’s existing results measurement framework, helping drive IFC strategy and operational decision-making with systematically greater attention on development results.
Currently, IFC is testing its IDGs in six areas (agriculture, health and education, finance, infrastructure, MSMEs and climate change) that represent areas of strategic focus for IFC, where it can meaningfully measure results and make a difference.
Although DFIs have generated impressive development results over the past fifty years, there remains much that can be achieved. As TA transitions into its ‘third generation’, DFIs, beneficiary governments, and the donor community can push programmes beyond traditional methods into innovative mechanisms that incorporate context, local ownership, and flexibility.
IFC – in partnership with multiple stakeholders – delivers nearly USD 300 million in advisory services annually to improve the investment climate, develop basic infrastructure, increase access to finance, and promote sustainable business in beneficiary countries. By building on lessons learnt, working in partnership with all stakeholders, and generating a new perspective on interventions, IFC and other DFIs can push TA even further. But to do so will require clearly articulated goals, multi-stakeholder cooperation, and innovative and adaptable approaches.
¹ The Millennium Development Goals (MDGs) are eight international development goals that all United Nations member states and at least 23 international organizations have agreed to achieve by the year 2015. They include eradicating extreme poverty, reducing child mortality rates, fighting disease epidemics such as AIDS, and developing a global partnership for development.