Knowledge for Private Sector Development Independent Evaluation of IFC’s Development Results 2009

Knowledge for Private Sector Development Independent Evaluation of IFC’s Development Results 2009 Presentation at the IFC Donor Forum Paris, May 26, 2009 Marvin Taylor-Dormond, Director Daniel James Crabtree, Task Leader

Independent Evaluation Group • IEG Independent – we report to World Bank/MIGA/IFC’s Board (CODE) • We share results with stakeholders • Why do we evaluate? • Accountability • Learning • Results/resource allocation • Micro and Macro Evaluations

IEG: Independent evaluation Board President World Bank Group World Bank Multilateral Inv. Guarantee Agency IEG-WB IEG-MIGA Director-General, Evaluation (DGE) IEG-IFC

Knowledge and Development • Housing Finance (HF) in Pakistan • HF underdeveloped due to lack of skills, capacity • IFC had provided AS to largest HF provider in Pakistan • In mid-2007, IFC partnered with the State Bank of Pakistan to deliver customized HF training, drawing on global knowledge • Short run: 30 FIs trained (all lenders), compared to expected 5 at the outset • Medium run: Sustainable training program - run by local partner on cost-recovery basis • Long run (expected): Increased HF $ in Pakistan

Knowledge and Development • Telecomms. in Kenya • Kenya – previous attempts to privatize had failed • Govt of Kenya needed technical advice and neutral broker • From mid-2006, IFC acted as privatization advisor to GOK • Short run: $390 million in new investment/revenue realized • Long run (expected): Expansion of rural network, increased connectivity • Indirectly led to Safaricom mobile divestment

Knowledge and Development • Financial and physical resources are not sufficient for growth • Advances in knowledge and technology are essential – to enhance productivity and competitiveness • Requires combination of public and private sector actions • Public sector: Knowledge infrastructure (e.g. education, R&D, IPR) • Private sector: Innovation and investment • Both: Appropriate standards, regulation and governance • IFIs: Can contribute various knowledge solutions

First Global Review of IFC Advisory Services • Annual IEDR provides a review of the development performance of IFC interventions • Past IEDRs have focused on IFC’s finance activities • New this year: • First global evaluation of IFC Advisory Services • Thus, the first combined assessment of Investment & Advisory businesses

Three main messages for IFC • Strategic coherence at all levels is essential to enhance the sustainability & impact of Advisory Services • Key success drivers for AS are client commitment, additionality, programmatic approach, and local presence • Successful crisis response needs to be visible and timely (to have a signaling effect) and balance portfolio management with new business pursuit

Outline • The Private Sector, Development and the Crisis • Key IFC Development Results • IFC Advisory Services: Main Findings • Recommendations

Private Sector, Development & The Crisis • Private investment associated with growth • Private sector at heart of crisis…also key to long term recovery • Debate around sustainability, and the most appropriate development model going forward • In times like these, IFIs have fundamental $ and knowledge roles to play

Key IFC Development Results:Investment Services (IS) • Continued growth in investment operations: • $22 billion disbursed outstanding at end of FY08 • Improved project development outcomes overall (up to the crisis) • 72% of operations achieved high development outcomes (met or exceeded benchmarks) • Most projects were implemented prior to crisis; effects of crisis likely to be seen in newer operations (early implementation) • Substantial variation by region… • Material variation by country income level…

Key IFC Development Results:Advisory Services (AS) • Rapid growth in IFC AS, in $ and staff • Has changed face and nature of IFC • Portfolio nearing $1billion; 1,262 staff (and some 1,300 short-term consultants each year) • Overall Results of AS, FY06-08: • 70% of FY06-08 projects achieved high development effectiveness ratings (met or exceeded objectives) • Material variation by region and business line…

Key IFC Development Results:Advisory Services, by Region Southern Europe, Central Asia (SECA) Middle East & North Africa (MENA) South Asia Region (SAR) Sub-Saharan Africa (SSA) East Asia, Pacific (EAP) Central & Eastern Europe (CEE) Latin America & the Caribbean (LAC) Projects in SECA performed best, LAC the weakest… Note: ECA (SECA and CEE) especially strong for projects beginning since 2005; SSA results have also improved

Key IFC Development Results:Advisory Services, by Business Line INF, BEE & CA (more established) relatively strong…ESS (newer, more scattered) lagging… Infrastructure Corporate Advice Business Enabling Environment Access to Finance Environmental and Social Sustainability

IFC Advisory Services: Main Findings Growing professionalization, but strategic clarity lacking (at various levels) Like IS, IFC additionality is fundamental Client Commitment is key: $ contributions associated with better results; limited to date Local ownership/presence matters for impact; efforts to devolve further Programmatic AS interventions have better results; not so common IS-linked AS more effective in CA, ESS, INF and BEE than A2F Core vs. non-core products, & IDA vs. non-IDA: No results distinction yet Performance measurement and KM improving, but need attention

1. Growing professionalization, but strategic clarity lacking • AS growth has been fragmented (since 1980s) • Efforts to professionalize since 2005, including: • Business Lines established; Core & non-core products • Project M&E system (more advanced than other MDBs) • Pricing policy (unlike other MDBs) • AS Vice Presidency in 2008 • No overall strategy, with clear goals (incl. fit with IS), staffing model, funding mix, targets… •  What results is the business being managed for? – Globally, at region and country levels

2. Like IS, IFC Additionality is fundamental • Crucial that IFC complements others with special contributions: Additionality • Quality of additionality impacts results: • With high additionality: 83% ‘success’ rate • With low additionality: 13% ‘success’ rate • High ADD: BEE in various IDA countries (e.g. PSD Reform Process Facil. & Mgmt. in Bangladesh); Romania Dialysis; Several gap filling/first of a kind ESS projects (incl. ASrIA SRI Sector Study, CSR training in Cambodia) • Low ADD: RF Auto Supplier Devt, Russia; SEDF-MDT Bangladesh

3. Client Commitment is Key: $ Client Contributions associated with better results, but limited to date Note: Pattern also holds for BEE (i.e. not just firm specific) Examples: Kenya Telecomms; Yes Bank, India; WHL E-Portal;

4. Local presence/ownership matters for impact; efforts to devolve further • Previous research and evaluation indicates that local ownership/adaption matters • This evaluation shows the importance of local IFC staff presence: • Field-based TL: 78% success rate • HQ-based TL: 65% success rate (even lower for ESS) • Local presence helps with tailoring of project design to fit client needs, & supervision • Steps being taken to shift more responsibility and budget to local/regional level

5. Programmatic interventions have strong results; not so common • Better outcomes when AS is linked with other AS (in sequence or in parallel) • Linked: 76% success rate • Not linked: 66% success rate • Examples: Housing Finance Training, Pakistan/MENA; Sierra Leone Admin. Barriers & Business Licensing Implementation • Only around 1/5 of AS operations are ‘programmatic’, by this definition • More programmatic AS is desirable

6. IS-linked AS more effective in CA, ESS, INF and BEE than A2F • Around 20% of AS linked with AS • The following IS-linked AS has performed well: • SME linkages – real sector (agribusiness, manufacturing) • ESS projects do better when delivered to an investee, and can enhance impact (but need client commitment) • Evaluated INF and BEE IS-linked AS generally rated highly • Weaker performance in A2F: • Around a half of IS-linked AS achieved high devt. ratings • Examples: Federal Bank, India (high); Republic Bank MF, Carrib. (low) • As a corollary: IS and AS performance tends to move together (but moderately)

7. IDA vs. non-IDA & Core vs. non-core products: No results distinction yet • IDA operations are achieving around the same success rate as non-IDA operations: • Generally more difficult business environments in IDA countries, which have adversely affect IS performance • May be better sometimes to focus on AS first in IDA countries (shows up in strong ratings for BEE work in high-risk IDA) • Results to date have been comparable, whether products have been defined as core or non-core • Core/non-core classification may need further refinement

8. Performance measurement and KM improving, but need attention • Strong M&E and knowledge sharing can enhances focus and prospects for success • Improving at project level, but still major gaps: • PCR less than minimally acceptable: 49% of cases • ‘No opinion possible’: Around a 1/3 of cases (often due to incomplete PCRs) • Issues: Baseline data; use of indicators; lesson capture • Facility and product reviews of some use, but show design and independence weaknesses • Meaningful results targets at corporate, regional and country levels yet to emerge

Five recommendations for IFC Crisis: Manage portfolio/new business tension; clear rules of engagement; promote prudent risk management 2. Develop an overall AS strategy, which: Articulates IFC comparative advantages Establishes clear goals and objectives Considers scenarios (e.g. for staffing; funding; etc.) Contains meaningful performance targets Note: Same applies at the region & country levels 3. Pursue more programmatic AS interventions

Five recommendations for IFC 4. Improve pricing policy execution Short run: Greater client contributions (less subsidy) Long run: Consider value-based pricing, where feasible (reflects quality/additionality of AS, rather than cost) 5. Strengthen AS performance measurement and KM More M&E support; lesson capture More arms-length facility, product & project reviews XPCR project evaluation (later, deeper than PCR) Results-based AS targets & benchmarking Consider AS research unit

Comments? Questions?

Knowledge for Private Sector Development Independent Evaluation of IFC’s Development Results 2009 Presentation at the IFC Donor Forum Paris, May 26, 2009 Marvin Taylor-Dormond, Director Daniel James Crabtree, Task Leader 27

Knowledge for Private Sector Development Independent Evaluation of IFC’s Development Results 2009