Financial sector development - Sida

Box 2. Restructuring of a state-owned financial institution in Nicaragua
Between 1987 and 1995 about MSEK 150 were allocated as SIDA support to the government of Nicaragua for
the promotion of non-traditional exports. These funds were channelled to the banking system through a public
entity, Financiera Nicaraguense de Inversiones (FNI), which was controlled by the central bank. As a follow
up of an appraisal of this support Sida decided in 1996 to condition further support to the export programme to
an operational and financial restructuring of FNI. As a first step Sida provided consultancy support for FNI to
prepare a plan of operation regarding its future role as a commercially oriented second tier bank, i e a capital
market institution that would refinance and guarantee loans provided by the commercial banks to producers of
non-traditional export goods. As a second step Sida reached an agreement in principle with the ministry of
finance of Nicaragua regarding the use of MSEK 50 as an additional financial assistance by Sweden. This
agreement included terms (commercial rates of interest) for onlending to FNI and conditions related to the
conversion of loans to equity and the composition of the new board of FNI. In the fall of 1996 the government
of Nicaragua initiated its work to restructure FNI financially, i.e. bad loans were removed from the balance
sheet of FNI. Following the approval by parliament of a new law (expected by mid-1997) which will turn FNI
into a banking corporation partly open to private shareholders Sida will start its disbursement of funds to FNI.
This project may be seen as an example of a synergy of traditional Sida aid and capital market development
which is geared towards achieving a sustainable institution operating on market terms.
5.3 Financial sector projects: technical assistance
The list of financial sector development aid from SIDA contains a dozen projects, of
which half are only a few years old. In the 1960s, there were a few technical assistance
projects in connection with the privatisation of the banking sector in Tanzania, but also in
Kenya and Zambia. The largest of these projects, MSEK 55 in support of the establishment
of the Central Bank of Namibia, was started in 1990 (Box 3). Then followed
computerisation in the Central Banks of Kenya and Tanzania, debt management in the
Ministry of Finance in Kenya, support to bank inspection in Zambia, and budget support
to debt and foreign exchange reserve management through ESAIDARM. The second
largest project - general technical assistance and training for the banking sector in
Vietnam - started in 1992.
So far only a few of these projects have been evaluated. An evaluation of the savings
promotion programme in 1993 came to negative conclusions, whereas SIDA’s support to
the debt management project to Kenya and the support to the Central bank in Lesotho
were found to be successful. An evaluation in 1994 of the very large support - MSEK 60 -
to the Vietnam banking sector was somewhat critical, also regarding some aspects of the
implementation by the donor SIDA.
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