Financial sector development - Sida

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SIDA gave a total of MSEK 250 over 15 years to the Tanzania Investment Bank. In practice, the main function of the bank was to channel large amounts of foreign exchange to improductive parastatal companies which rarely repaid their loans. The Bank has been evaluated several times with progressively more negative findings. The Central American Bank for Economic Integration (CABEI), received MSEK 60 in grants with the purpose of channelling credits to small enterprises. Evaluations have found that CABEI encountered serious problems given its traditional emphasis on (political) development goals, and that it would have to be restructured if it is to play a major role in servicing the private sector with investment capital. An internationally famous bank, which has received almost MSEK 300 in support from Sweden is the Bangladeshi Grameen Bank. This Bank started in 1976 as an experiment in lending to the poor and to women. The Bank explicitly stated the goal to show that poor people are able to accumulate savings and that they are able to manage repayment of credits in a disciplined way. Although recent evaluations have warned against actual and potential problems ahead for the Bank’s continued financial viability, SIDA’s involvement in the Grameen Bank must overall be labelled a success. It was catalytic in the sense that SIDA was one of the first to support it, thereby attracting other donors. Today Sida’s aid has been discontinued, and for a very gratifying reason, namely that, in the words of the responsible programme officers, ”it is no longer needed”. A new generation of credit programmes in SIDA’s aid portfolio were the ones directed towards housing construction and microcredits for the urban poor. The first of these programmes were started in Costa Rica and Chile in 1987. Later similar programmes in Nicaragua and Salvador were supported. Presently, a further housing credit programme in South Africa is under negotiation. In total, approximately MSEK 200 have been granted to social housing projects, mainly as revolving credit funds, but also for technical assistance. The catalytic effect of these programmes is much emphasised, consisting mainly of luring the regular banking sector into the financing of poor peoples’ housing. The largest of these programmes was the support to housing in slum areas in Costa Rica, FUPROVI, which with regard to financial strategy has two objectives: to reach the poor and to achieve long term sustainability of the institution itself. An evaluation found the project to have succeeded well regarding both objectives. The self-help construction programme as well as FUPROVI as an institution provide a model to be studied and applied elsewhere. SIDA provided MSEK 48 to the Local Development Programme in Nicaragua, PRODEL. In 1996 an evaluation of this project turned out to be generally positive: ”Amidst extremely difficult conditions PRODEL has created innovative working institutional arrangements which contribute to the development of local and municipal capabilities”. Between 1988 and 1993, BITS granted eight concessional credits, totalling approximately MSEK 800, to national development banks in India, Thailand, Pakistan, Chile, Tunisia and Malaysia. BITS worked exclusively with already well established, and solid banks. The objective was thus not to contribute to building up the financial systems, but rather to use existing banks as reliable conduits for channelling credits to industry. 22
Box 1. Swedish support to the banking sector in the Baltic states In the course of 1994 BITS conducted a comprehensive study on how to promote the banking sector of the three Baltic states. On the basis of this study the Swedish government in September 1995 allocated MSEK 240 for a project to be implemented by a subsidiary company of Swedfund International AB, Swedfund Financial Markets (SFM). A major share of the funds will be used for risk capital investments in private commercial banks in Estonia, Latvia and Lithuania. Some funds will also be used for technical assistance to such banks. The SFM investments are made in close co-operation and consultation with the World Bank Financial Institutions Development Programme the main purpose of which is to improve the financial intermediation capacity of the banking sector in the Baltic states. Often investments are made in parallel to investments by EBRD and Swedfund`s sister organisations in Europe. By March 1997 SFM has invested a total of MSEK 161 in nine commercial banks, three in Estonia, three in Latvia and three in Lithuania. SFM is also a shareholder in the three national investment banks. In addition to financial and technical assistance provided by SFM technical assistance is provided by Sida (Department for Central and Eastern Europe) to the financial sector in the Baltic states.Sida`s support is focused on training programmes and training institutions in e.g. banking and insurance as well as to the development of laws, regulations and central supervisory institutions and systems for the financial markets. Sida i.a. provides support to the central project implementation units that have been established in the finance ministries to supervise the World Bank/SFM Support Programme. Perhaps the most active of the Swedish aid agencies in providing aid geared towards financial sector development was SwedeCorp. By 1994 it had developed a dozen projects, most of them investments in credit lines or equity. SwedeCorp’s mode of work was ”from down up”, meaning that most of the projects came about as a result of initial discussions with entrepreneurs at firm level. The SwedeCorp projects were started as late as 1994-95, which means that there are no ex post evaluations available as yet. According to a broad definition of financial sector aid projects, Swedfund is involved in 11 such projects. In addition it has in its books five equity investment projects financed by a conditional loan from SwedeCorp. All of the Swedfund investments were made in the last two years and no evaluation has yet been carried out. The experience reported informally is positive so far. Since ”new” Sida was created in 1995 with the merger of SIDA, BITS and Swedecorp, a new generation of more focused capital market development projects have seen the light. Among the ones consisting mainly in the provision of capital is the capitalisation of FNI, a refinancing institution in Nicaragua (Box 2), a regional risk capital fund in Central America, CAIF, as well as an environmental risk capital fund in Central America. None of these projects has yet been evaluated. 23
Page 1: *MRERGMEP7IGXSV(IZIPSTQIRX %VITSVXF
Page 4 and 5: TABLE OF CONTENTS EXECUTIVE SUMMARY
Page 6 and 7: 10.4 Goals and points of departure
Page 8 and 9: EXECUTIVE SUMMARY Evidence from the
Page 10 and 11: The proposed Sida policy on Financi
Page 12 and 13: 1. BACKGROUND 1.1 Mandate and terms
Page 14 and 15: eduction. To this end, Sida has dev
Page 16 and 17: along with growth. This approach hi
Page 18 and 19: thus encouraging savings. On the ot
Page 20 and 21: Informal financial systems are comm
Page 22 and 23: I General projects and sector progr
Page 26 and 27: Box 2. Restructuring of a state-own
Page 28 and 29: Box 4. Reform of legal framework fo
Page 30 and 31: 6.2 Increased demand for capital fr
Page 32 and 33: In the 1970s and 1980s a substantia
Page 34 and 35: A first lesson is that subsidies, e
Page 36 and 37: Governments have used the banking s
Page 38 and 39: Several investment funds focusing o
Page 40 and 41: countries in Sub-Saharan Africa. Th
Page 42 and 43: Table 4. Financial depth (Broad mon
Page 44 and 45: formal and informal markets is not
Page 46 and 47: competitors in the microfinance sec
Page 48 and 49: A survey report (Appendix 5) analys
Page 50: (and other program countries) are v
Page 53 and 54: Commercial Law in Gothenburg, the S
Page 55 and 56: Box 8. Advanced training in capital
Page 57 and 58: • the poor state of the financial
Page 59 and 60: poor, micro-enterprises and others
Page 61 and 62: • Equity investments involve a su
Page 63 and 64: • If the purpose of the contribut
Page 65 and 66: • to make risky investments pract
Page 67 and 68: 10.5 The comparative advantages of
Page 69 and 70: work to prepare financial sector st
Page 71 and 72: a substantial part of Sida’s pove
Page 73 and 74: GLOSSARY OF FINANCIAL TERMS Below a
Page 75 and 76:
Indirect instruments: In connection
Page 78:
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Financial sector development - Sida

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