Financial sector development - Sida

The proposed Sida policy on Financial Sector Development aims at contributing to the
fulfilment of the overall development goal adopted by the Swedish Parliament - to improve
the quality of life of poor people - and the six subsidiary goals of economic growth, socioeconomic
equality, economic and political independence, democratic development,
sustainable use of natural resources and gender equality. Financial sector development is
particularly related to the promotion of economic growth but may also contribute to
meeting the other goals.
The main responsibility for the development of the financial sector rests with the
government in the recipient countries and the various private actors. The role of Sida is to
support the efforts of these parties. Sida, apart from providing finance for such efforts, has
an important role in the elaboration of financial sector policies in recipient countries and in
the design and implementation of assistance projects. Sida may also act as a catalyst for
the mobilisation of additional resources for project purposes and as a networking agent for
contacts with other foreign partners so as to enhance co-ordination and stimulate transfer
of know-how.
In addition to basic assistance related to the promotion of peace, democracy and human
rights, Sida´s efforts to promote good governance (the rule of law, good public sector
management and the fight against corruption), macro-economic stability, financial market
safety nets and a competitive environment are essential prerequisites of successful
financial sector assistance.
The merger of the five Swedish development agencies has improved the possibilities to
provide efficient financial sector development assistance. While the old agencies often
made interventions at one level of the sector (macro, meso or micro), Sida may combine
interventions at different levels at the same time. In this respect, Sida may employ a
variety of aid instruments and has the advantage of cooperating with both government and
non-government parties, potentially benefitting from synergies with Sida support to other
sectors.
The goal of Sida’s financial sector assistance is to contribute to the provision of
efficient, sustainable and competitive financial services to the benefit of governments,
enterprises, households and individuals.
The recommendations of the Review can be summarised as follows:
It is proposed that Sida should provide technical assistance for the development of (1) a
basic legal and regulatory framework, (2) financial markets and financial institutions and
(3) a capacity to prevent and monitor crises in the financial sector. Sida should also
provide financial assistance (i.e. provision of capital) which may take different forms
depending on the conditions for the transfer. Loans and guarantees could be provided
directly by Sida. The availability and the specific features of these instruments will depend
on the decisions taken by the Swedish Government in relation to the recommendations by
the Concessionary Credit Study (”kreditutredningen”). Provision of risk capital should
normally be made through other agencies such as Swedfund which may act as
shareholders and execute owner functions in the financial institutions. Sida should only
provide refinancing of such risk capital on the condition that Sida does not take the full
risk.
Sida´s country strategies should provide the basic guidelines as to the type of development
projects. In a limited number of countries, e.g. countries in Eastern and Southern Africa, a
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