The quest for sustainability in National Development Banks

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The quest for sustainability in National
Development Banks
AD HOC EXPERT MEETING ON  Rethinking the role of
National Development Banks 
Ignace MONKAM-DAVERATFinancial and Private
Sector Development Department monkam-daverati_at_afd
.fr
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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

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Geographical Coverage

• Over 60 countries in Africa, Mediterranean
  countries, Asia and the Caribbean - a network of
  45 local offices

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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
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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.

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Sustainability in National Development banking
Keys for success
GOVERNANCE AND MANAGEMENT OPTIMISATION
NDB
DEVELOPMENT IMPACT OPTIMISATION
COMPETITIVE POSITIONING
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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
GOVERNANCE AND MANAGEMENT OPTIMISATION
NDB
DEVELOPMENT IMPACT OPTIMISATION
COMPETITIVE POSITIONING

• 1.Subsidiarity

2.Optimisation of impact
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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)

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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.

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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

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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

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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

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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

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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

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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

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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
  isnt 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.

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• THANK YOU FOR YOUR ATTENTION