AD HOC EXPERT MEETING ON « Rethinking the role of National Development Banks » The quest for sustainability in National Development Banks Ignace MONKAM-DAVERATFinancial and Private Sector Development Department email@example.com
The AFD Group • The AFD Group: • the main institution in France with a global mandate for financing development • A specialised financial institution, subject to banking regulations and external auditing, • Its areas of expertise and know-how: urban development, infrastructure, rural development, industry, financial systems, the environment, education and health care. • The Agency offers a wide array of financial instruments ranging from subsidies to loans at market conditions, adapted to the economic situation of the country in which they are being used. • The Agency is active on five continents, where it finances economic, environmental and social projects undertaken by local authorities, public companies, territorial bodies and the associative and private sector. • Proparco is its specialised subsidiary in financing and promoting the private sector
Geographical Coverage • Over 60 countries in Africa, Mediterranean countries, Asia and the Caribbean - a network of 45 local offices
Introduction • Consequences of inefficient financial systems in developing countries : • Financial needs are not satisfied on local capital market • Insufficient financial institutions and financial infrastructure to favour resource circulation between savers and borrowers (financial intermediaries, financial markets, settlement systems, …) • Inadequate funding with maturities and interest rates that match the investment needs of the productive sector NDBs can be a solution to fill the gap
The AFD experience with NDBs • In Africa : support to 25 NDBs between 1960 and 1990 as : • shareholder • technical assistant • lender • Over the world in countries of operations: • lending to almost 100 NDBs • This experience allow the AFD to draw lessons regarding key factors for sustainability of NDBs.
Sustainability in National Development banking Keys for success GOVERNANCE AND MANAGEMENT OPTIMISATION NDB DEVELOPMENT IMPACT OPTIMISATION COMPETITIVE POSITIONING
Sustainability in National Development banking 8 key factors for success 3.Board and management independence 4.Risk assessment and management 5.Access to financial resources 6.High level of own funds and prudential rules. 7.Control of operations for third parties 8.Adaptation and anticipation 1.Subsidiarity GOVERNANCE AND MANAGEMENT OPTIMISATION NDB DEVELOPMENT IMPACT OPTIMISATION COMPETITIVE POSITIONING 2.Optimisation of impact
Key factors for success Competitive positioning 1.A principal mission clairely identified and subsidiary to private local financial intermediaries by : • The specificity of the sectors financed (infrastructure, housing, agriculture, …) • The specificity of the target clientele (companies, SMEs, farmers, MFI …) • The specificity of the geographic zone of intervention (specific region of the country, regional integration, ... ). • The specificity of the financial instruments provided ( intervention with own fund, subsidised loans, garanties, long term resources…)
Key factors for success Development impact optimisation 2.The optimisation of the impact on development: • Definition of indicators of impact and follow-up in the implementation of projects • Use of impact indicators as a tool: • to negotiate and communicate externally with Authorities about the contribution to national development objectives, • to converse with partners like donors • to improve project impact of projects on final beneficiaries.
Key factors for success Governance and management optimisation 3.A corporate governance whitch preserve the independence of the board and the management : • In countries where public governance is weak, shareholding where the state does not have the majority share. • A board of direction whitch reflect the shareholders but also opened to independent administrators from the private banking sector • A general management which masters banking skills and the particularities of development
Key factors for success Governance and management optimisation 4.The mastery of risk and banking skills: • The access to skills adapted to the risk control (methodology, financial analyst skills, granting procedures, use of guarantees, existence of operational risk limits, independence in grant decisions, following and valuing risk) • The soundness of internal control (procedures, organisation, auditing, audit committee) • The optimisation of financial management (treasury, asset and liability management) and the pricing adapted to risk • The monitoring of skills and staff
Key factors for success Governance and management optimisation 5.The sustainable access to subsidised resources and to the local capital market : • The need to have a wide array of financial instruments, ranging from subsidies to subsidised resources and loan at market conditions • The mobilisation of subsidies and concessional loan from the State and donors • The mobilisation of resources at market conditions on the local capital market, on the international capital market
Key factors for success Governance and management optimisation 6.A high level of own funds and the respect of prudential limits in order to face: • High-risk environment • High-risk projects • Operational risk
Key factors for success Governance and management optimisation 7.The control of operations for third parties, particularly they are authorities : • The initial negotiation on the service and its estimation • Allocation of dedicated means and its management outside every day banking operations
Key factors for success Governance and management optimisation 8.Adapting and anticipating evolutions in a changing environment • Contribution to thoughts concerning evolutions in sectors of intervention • Partnership with local financial intermediaries, donors, local financial markets, final beneficiaries of loans • Permanent dialogue with Authorities
Conclusion • Key factors presented must be adapted with each national context. • NDB is a instrument to alleviate ineffectiveness of local financial and banking and sector but it isn’t the only one. • This instrument can be expensive regarding public resources (subsidies, loan with grant element, free taxes,…). So Authorities are going to see if they can meet the same goal with less resources. • The answer depend on each national contexte and the maturity of it financial and banking sector.