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Sustainable Financial Development in Africa: KfW's Approach

Learn how KfW fosters sustainable financial systems in Sub-Saharan Africa through institutional building and product refinancing. Explore KfW's guidelines and interventions for a systemic and holistic approach.

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Sustainable Financial Development in Africa: KfW's Approach

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  1. KfW’s Approach to Development Finance in Subsaharan Africa Christian Dörner, KfW “The Role of National and Regional Development Banks in Africa” Paris, 27 - 28 June 2006

  2. KfW Guidelines for Financial Sector Interventions Objective • Sustainable development of efficient, inter-linked financial systems and viable institutions (Systemic Approach) Development Principles • Sustainability: Intended improvements in the financial sector remain in effect after completion of intervention • Subsidiarity: intervention only, where markets/private-sector institutions fail to provide appropriate funding facilities • Integration of intervention into overall development strategy of a country • Complementarity with other development partners

  3. KfW Interventions Consequence for Intervention Design (Institutional Level) • Promotion of sustainable institutions adhering to professional (banking) practices • No mere channeling of funds Product Clusters • Institution Building • Active intervention in building up sustainable institutions • Focus: Micro-/SME Finance • Refinancing Facilities • Refinancing of specific product portfolios

  4. Institution Building (Microfinance) I Upgrading • Transformation of NGOs into Microfinance Banks • Examples: UMU Uganda, Socremo Mozambique, NAMIB Namibia Downscaling • Cooperation with existing commercial banks • Example: Rwanda Greenfielding • Foundation of new specialized Microfinance Banks • Example: MIFSSA-Initiative; Foundation of new Banks in 5 Countries (Ghana, DRC, Sierra Leone, Senegal, Rwanda) Linking • Linking of NBFI to formal financial sector • Example: Caisses Rurales, Mali

  5. Institution Building (Microfinance) II Broad Range of Instruments • Direct Equity Participation; • Participation in Investment Funds • Credit Refinancing • Technical Assistance Guiding Principles/Objectives • Establishing sustainable Institutions that contribute to structural deepening of financial sector • Private Sector Governance • Product Diversification: mobilization of local ressources via introduction of savings products, flexible credit products, other financial services • Transitory Assistance: implication of local and/or private partners at later stage • Mobilization of private capital via fund structures

  6. Refinancing Facilities (I) Guarantee Facilities • Mobilization of local (currency) funds for refinancing of financial intermediaries • Example: Ethiopia APEX-Structures • Long-term wholesale refinancing of financial institutions • Matching with local funds • Examples: DFCU Uganda Provision of Credit Lines for Specific Financial Products • Objective: Broadening the provision of financial products • Transitory Assistance until product well established and refinanced from other (local) sources • Examples: Leasing (Uganda), Housing Finance (South Africa), Municipal Infrastructure Finance (South Africa)

  7. Refinancing Facilities (II) Partner Institutions • Commercial Banks, Microfinance Institutions, Development Banks • Institutions have to adhere to professional (banking) practices Guiding Principles/Objectives • Institutions will be able to offer refinancing services even after expiry of KfW refinancing line

  8. Concluding Remarks Market Failures still exist • Crowding out of private credit demand by public deficit spending • Informational assymmetries Role of Donors • Promote/Cooperate with efficient, professional and sustainable financial institutions • Continuous extension of the financial frontier (innovative banking technologies, improved framework conditions for economic actors) Not • Enticing financial sector institutions to finance projects that lie (at least at present) beyond the financial frontier • Extending mandate of (public) Development Banks beyond the compensation of market failures

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