STRATEGIC PLAN 2013 - 2018.

STRATEGIC PLAN

What is FSD Africa? FSDA is a programme that promotes financial sector development across sub-Saharan Africa. It is based in Nairobi. Its goal is to reduce poverty. It achieves this by supporting efforts to improve financial inclusion and by helping financial institutions and markets drive economic growth. It is a market development agency, or “market catalyst.” It supports processes of change that result in systemic benefits for financial markets – e.g. better policies, more innovation, greater competition. These enhanced characteristics make markets operate more efficiently and improve choices for consumers. FSDA strengthens market capacity by facilitating the transfer of skills, by making it easier to access and use the different types of information on which efficient financial markets depend and by encouraging investment in financial infrastructure. It is a regional programme that looks for efficiencies and economies of scale – e.g. in training or research – by operating across multiple jurisdictions. It is a platform that is available to other donors seeking to support African financial market development at scale. It supports a network of FSD programmes in 9 African countries by facilitating the exchange of market insights and by providing strategic advice and co-funding. It is highly focused on impact. By 2018, 3m more people will have access to formal finance (over half of these will be women) and 4,000 financial sector employees will be trained as a result of initiatives supported by FSDA. At least 20 financial institutions will benefit from technical assistance from FSDA which will also catalyse change processes in at least 5 countries in SSA that do not have their own FSD programme. Two of these will be conflict-affected countries.

Table of contents Executive summary
FSD Africa Strategic Plan 2014 – 2018 Introduction Section 1 Vision, mission and key activities Section 2 FSD Africa in context Section 3 Programme delivery Key elements of Strategic Plan Detailed implementation plans Section 4 Communications Section 5 Impact Section 6 Governance and management Section 7 Financial information Annexes Detailed budget assumptions Job descriptions Draft SIMBA logframe

About this document INTRODUCTION: This is an introductory narrative that contains a problem statement and a high-level explanation of how FSDA will be positioned to deal with the problem. SECTION 1: This section introduces FSDA’s vision and mission and is a summary of the plan. SECTION 2: This section gives the contextual background, and suggests how this context has implications for FSDA’s plan. SECTION 3: This is the longest section of the document and contains the substance of the operational plan. A standard structure is applied to each of FSDA’s proposed 4 pillars – including key assumptions and activities, budget and risks. SECTIONS These sections are self-explanatory and provide details of FSDA’s communications strategy, impacts, governance and management, and finances.

Introduction. Financial exclusion in Africa –
pervasive but with regional differences Sub-Saharan Africa (SSA) has the worst levels of financial exclusion of any global region. There are significant regional disparities – some regions, and countries within regions, have much better inclusion indices than others. Generally, however, financial exclusion is high in rural areas and among young people and women’s access to financial services is persistently worse than men’s. Rapid economic growth and asset inflation has increased affluence for some, stimulating demand for more complex, higher value-adding financial products and, in some markets, creating a problem of over- indebtedness. However, growth has also increased the threat of rising inequality. Sustained investment is needed to combat high levels of unemployment across the continent, especially among young adults. 200m Africans are aged between 15 and 24; they account for 20% of Africa’s population and 60% of its unemployed.1 Financial institutions (FIs) face significant capacity constraints – keeping pace with growth and the rate of technological change, catering to the more complex needs of the increasingly affluent and developing new strategies to reach underserved market segments in a sustainable way. Skills shortages appear greatest in managerial roles such as leadership and strategy, strategic and mid-level HR and information management. With some exceptions, African business schools are “of low-quality, overly academic and out of step with the requirements of fast-growing African economies.”2 Some countries have made financial inclusion a policy priority. Others have made policy statements about financial inclusion but are yet to enact coordinated, or comprehensive reforms. Some countries do not even have a baseline for financial inclusion. This piecemeal progress reflects countries’ different socio-economic legacies but also the fragmented nature of African financial systems. Regional financial market integration remains an aspiration. 1 Brookings (2012); 2 African Management Initiative (2012)

Introduction. Financial inclusion – headline data
Figure 1 – country income status profoundly affects overall inclusion levels.1 Figure 2 – Savings rates - country income status affects savings rates. 1 Global Findex

Introduction. Financial inclusion – headline data
Post-conflict countries1 exhibit dramatically worse indicators on financial inclusion than countries that are not affected by conflict…. ….and mobile money is not compensating for the lack of formal financial services in conflict-affected 1 Global Findex analysis: post-conflict basket included Liberia, Sierra Leone, CAR, DRC, Somalia, Burundi, Madagascar

Introduction. Financial exclusion – an expression of financial system underdevelopment 1
African financial systems are underdeveloped because markets are small, because people earn and save little and are often dispersed over wide geographical distances, making it more difficult for financial institutions to reach them economically. Contract enforcement and corruption in an environment already characterised by informality and poor information weaken banks’ incentives to lend. As a result, levels of intermediation are low. When banks do lend to the private sector, almost 60% of loans are for less than 1 year. This undermines investment in the productive economy and job creation. Given the correlation between employment status and access to financial services, this entrenches financial exclusion in a direct way. African banking systems are generally concentrated and anti-competitive. Interest rate spreads are wide, which means that banks can support high overhead costs but at the expense of the real economy. Financial system underdevelopment causes financial exclusion because: It reduces growth rates and so incomes stay low, reducing the demand for financial products It prevents finance from flowing to economic sectors that affect the poor disproportionately, such as agriculture and infrastructure Financial inclusion allows people to contribute to economic growth, but growth (depending on the nature of that growth) is also a powerful driver for financial inclusion. While interventions like mobile and agency banking confront some aspects of financial sector underdevelopment in a compelling way, broad financial inclusion will also depend on encouraging innovative financing approaches to boost investment in economically productive sectors. According to the World Bank: “Africa needs to become a laboratory for innovation…in financial sector development, especially with regard to long-term finance.” 1 Financing Africa: Through the Crisis and Beyond (World Bank, 2011)

Introduction. FSD Africa – a catalytic response to a broad set of challenges
Through the £30m SIMBA programme, DFID has provided funding to support a wide range of innovative, market- building interventions that will result in major advances in financial inclusion in Africa. Core to the SIMBA logic is the belief that weak capacity undermines innovation and competition, increases inefficiency in the financial system and perpetuates exclusion. Weak capacity refers to a lack of professional, managerial and technical skills, but also to information gaps – “know-how” in a broad sense - especially around how to develop strategies to reach underserved market segments. FSDA will therefore provide resources for skills development by working directly with financial institutions, by strengthening the regional infrastructure for financial training and by supporting the development of knowledge- based services markets, such as data analytics and HR. FSDA has been set up as a regional platform to work across SSA. Its projects will almost always have a multi- country dimension, especially where it is engaged in market-building initiatives around core thematic programmes, such as payments or agriculture finance. Its work will prioritise the exchange of information and knowledge across borders. It will look for economies of scale as it builds regional services markets, including training. It will stimulate change processes in countries that lack coordinated policies for financial inclusion. It will work with regional actors – African and international – in the private sector and the donor community in order to catalyse change at scale. Critically, it will work with country-based FSDs to build a robust network in which the FSDs value the exchanges they have with each other and where external partners see value in engaging with the network as a collective whole . FSDA will broker relationships that will bring benefit to individual FSDs. FSDA will be a flexible contracting platform to external partners seeking to engage in Africa. It will also provide direct support to partners’ initiatives elsewhere in Africa. Increasingly, FSDA will seek out linkages between the worlds of financial inclusion and mainstream financial sector development in order to foreground economic growth as a key driver of financial inclusion.

Introduction. FSD Africa – a distinctive value proposition
Broad mandate Financial inclusion and financial sector development Flexible - but long-term, market-building - approach Making Markets Work ‘ethos’, wide range of intervention tools, and ability to work with public and private sector Regional perspective Ability to address shared challenges; potential to coordinate efforts of multiple actors to achieve impact at scale Working with the FSDs – multiplier effect… FSDA will bring benefits to the FSDs – but FSDs will also benefit FSDA FSDA will be better informed and more efficient by working with the FSDs Collaboration should intensify impact FSD network Access to FSDs’ networks and experience and ability to share across borders

Introduction. The relationship between financial inclusion and financial sector development
Initially, FSDA will focus primarily on achieving the objectives of the SIMBA programme. SIMBA aims to bring 3 million poor people into formal financial provision by the end of the programme.1 Selectively, FSDA will use its SIMBA resources to explore the feasibility of intervening in the market using innovative financing approaches to drive inclusive growth. This would move FSDA towards risk-sharing and away from pure technical support or research. Such a move might involve catalysing the implementation of credit enhancement structures or impact investments. SIMBA does not have enough funding to accommodate these sorts of initiatives and FSDA would therefore need to raise additional funding. Solid feasibility work would strengthen the fund-raising case. Given the impact that innovation to support pro-poor investment could have on financial inclusion, FSDA believes that positioning FSDA in this way is directionally appropriate. There is increasing emphasis among donors on the growth agenda: while it is generally agreed that financial inclusion helps people (and especially vulnerable poor people) manage their lives more effectively, opinion is more polarised on the role financial inclusion plays in contributing to GDP growth. Exploring the inter- relationship between financial inclusion, financial sector development and growth would be valuable. There is also increased recognition that, in market environments that lack innovation or competition, some form of market-leading intervention (“well-designed, restricted interventions, in collaboration with the private sector” – to quote the World Bank) may be appropriate or even necessary to achieve the market change effects that “pure” market-building programmes seek. 1 A 7 year programme from 2012/13 to 2019/20

Introduction. The relationship between financial inclusion and financial sector development
Financial Sector Deepening Financial Sector Development Financial Inclusion Economic Development MEANS END END MEANS SIMBA programme focus: Financial Sector Deepening Financial Inclusion of 3 million poor across SSA Economic development driven through market efficiencies and entrepreneurialism

Fostering systemic change Providing information
FSD Africa conceptual framework Skills and information will be delivered through the regional platform, strengthening interventions in core thematic programmes Building skills Fostering systemic change regionally Providing information Thematic programmes FSDA’s four main activities are mutually reinforcing and aim at delivering – substantial and sustained – systemic change Regional platform

FSD Africa’s vision “Deep, efficient and inclusive financial markets that are responsive to the broader developmental needs of Africa’s economies and its people” Term Explanation Deep Financial depth – private credit to GDP; vision speaks to FSDA’s long term goal to support inclusive growth in an explicit way Efficient FSDA’s skills agenda aims to improve operating efficiencies of financial institutions, making them better able to innovate and compete Inclusive Financial breadth. Notion of inclusion goes beyond product usage. FSDA is committed to developing a better understanding of how access to financial services and inclusive financial systems improves livelihoods Responsive Combines notion of economic relevance with the Making Markets Work ethos of flexibility and “principled opportunism”. FSDA will strive to support innovation where there are gaps in provision (e.g. underserved sectors, countries with very poor inclusion metrics) Broader developmental needs Access to financial services for poor households but also access to finance for investment. Economic development as well as social development. Needs – analysis should identify clear demand African All of sub-Saharan Africa, including Francophone Africa and post-conflict environments People Poor people are central to FDSA’s vision – embraces client-centric approach to building financial inclusion as well as pro-poor dimension behind vision of inclusive growth

FSD Africa’s vision “To be a resource to facilitate innovation, skills development and research to encourage the development of African financial markets that are robust and inclusive” Term Explanation Resource Financial resources but also knowledge-sharing and facilitatory role (see below). FSDA’s corporate vehicle is a resource that can be used by partners as a contracting platform. Facilitate Highlights convening and connecting role but also the idea that FSDA can simplify or smooth processes for partners (e.g. government, donors, FSDs) who may lack capacity in one area or another. Facilitative role will involve bringing multiple players behind particular ideas or challenges in order to solve common problems and build understanding. Innovation Change processes that lead to new products and services or ways of doing business; or that encourages investment in underserved markets; or that allows governments to introduce new policies or regulation that change the regulatory status quo; or that result in information products that shed new light on how financial markets operate. May or may not involve ICT. Skills development Demand side initiatives to boost professional, managerial and technical skills within financial institutions; supply side initiatives to strengthen the regional infrastructure for financial training; market-building initiatives to stimulate and nurture knowledge-based services markets. Research Cross-country research; market studies; initiatives to strengthen existing information products and develop new ones; action research; impact research Robust Support for skills development aims to strengthen institutions’ capacity to embrace change safely and effectively. Support for inclusive growth initiatives to make capital available for underinvested markets.

Skills development and training Knowledge and evidence
Summary of FSD Africa’s key activities – four inter-related pillars Skills development and training Change management: technical assistance to support processes of innovation and organisational change within institutions looking to capitalise on opportunities in underserved segments . Building services markets: research and grant funding to stimulate key services markets. Initial focus on (i) coaching and strategic HR (ii) data management and analytics and (iii) e-learning. Centres of Excellence: partnerships with regional academic or training institutions to build curricula relevant to financial inclusion and increase volume of technical and professional training. Skills development and training Knowledge and evidence Cross-country research: investment in research to build cross-country comparisons to highlight regional differences and reveal advocacy opportunities and showcase innovation. Information products: support for research processes that enhance existing information products (e.g. FinScope) and stimulate the development of new analytical tools. Impact evaluation: coordination of a consultative process to strengthen capacity for impact evaluation across the FSD network and find answers to outstanding research questions concerning the most effective channels through which financial inclusion can be promoted. Portal: development of a major information resource for financial sector development in the region. Knowledge and evidence Thematic programmes Thematic programmes Thematic programmes: investment in multi-country, multi-year sub-programmes, based on M4P principles, to create new African centres of expertise around key thematic areas for financial inclusion. Initial focus on (i) retail payments, interoperability and G2P (ii) credit markets development and (iii) agriculture finance. Regional platform Regionalisation: research and advocacy to encourage processes of regional harmonisation. Cross-border initiatives: catalysing strategic financial inclusion initiatives in non-FSD countries; financial support to complementary donor programmes. Regional facilitation: coordination of FSD network activities and of other expert reference groups. New initiatives: feasibility studies and pilots to test pathways for FSDA “post SIMBA.” Regional platform

FSD Africa’s theory of change –
a high-level schematic Improved access to financial services; strengthened livelihoods for the poor Clear and appropriate policy and regulatory framework Effective competition between suppliers Diversity of sustainable suppliers Adequate credible information available to market players Innovation in products and services Appropriate knowledge-based services available to market players Enhanced market characteristics Improved evidence on how financial inclusion benefits the lives of the poor Increased market capacity Motivation Know-how and know-who Resources Regional resource Thematic programmes Knowledge and evidence Skills development and training Market infrastructure

Summary of FSD Africa’s anticipated impacts
The SIMBA programme has specific output, outcome and impact objectives as laid out in its logframe. FSDA is planned to outlive SIMBA and so its longer term impact objectives are broader than SIMBA’s. SIMBA logframe – selected key indicators Broader indicators of FSDA impact (by Year 5) 3m more people formally included. FSDA’s initiatives will result in 3 million more poor people in SSA having access to formal financial services by 2020. More than half of these will be women m women will have new savings accounts from formal financial institutions; 450,000 will have new loan accounts. FIs with which FSDA works will be more efficient and sustainable. Operating costs as a percentage of loans will fall from the market norm of 31% to 17%. Return on assets will increase from 4.8% to 14.3%. 3 strategic partnerships with training institutes. FSDA will initiate at least 3 partnerships with academic or training establishments over the lifetime of SIMBA. 5,000 people trained. Over 5,000 people will receive certified training by 2020 from FSDA partner institutions. Financial inclusion initiatives in 5 non-FSD countries. FSDA will catalyse inclusion initiatives in at least 5 non-FSD countries. FSDA will double its SIMBA funding from non-DFID sources. FSDA will crowd in £30m of additional non-DFID funding. Summary of FSD Africa’s anticipated impacts. Changed mindsets. FSDA will encourage a change in mindsets: Private sector institutions will see value in investing in skills. Donors will embrace the market building approach to capacity building and subsidise training activities less. Regional champion. FSDA will support the emergence of at least one hitherto unknown regional champion providing financial services to poor consumers. FSD network. FSDs acknowledge the incremental value FSDA has brought to their in-country activities. The FSD network is valued as being more than the sum of its parts. In collaboration with FSDA, FSDs provide finance to a range of growth-related interventions. The FSD network’s reputation for being able to embrace technically complex challenges is enhanced. FSDA support for underinvested markets. FSDA has helped smaller, unsupported countries keep pace with developments in financial inclusion and has intervened effectively in underserved sectors. FSDA has gained acceptance from African stakeholders (as evidenced by raising African funding) and has one successful pilot from a new “SIMBA Growth” programme whilst delivering imaginatively and impactfully on SIMBA.

FSD Africa post - SIMBA Credit Exchange Fund
Strategic options for FSDA post the 4 year SIMBA funding period include: Sustain, scale up or replicate successful SIMBA approaches. Play a more instrumental role in driving growth by catalysing and providing finance towards investment. As regards the growth agenda, FSDA believes there is a significant opportunity for it (and other FSDs) to catalyse innovative financing initiatives . FSDA would retain a systemic, or meso-level, focus (i.e. it will focus on market infrastructure) and would avoid picking winners or taking positions. Direct financing support would need to demonstrate ability to crowd in private funding at scale. Possible areas of focus: Supporting PPPs Risk-sharing Funding up front research to determine feasibility and likely impact and to assist with design. Credit enhancement - i.e. a tranche of risk capital (e.g. first loss) where this can clearly be demonstrated to be market-leading. Catalysing financing initiatives e.g. innovation or venture funds. Potential partners: regional development banks, international DFIs, impact investors, insurance industry. Near term strategy is: to be responsive to these new ideas (especially where the promoters have a good track record) . to allocate resources for initial feasibility work and design from current SIMBA funding.1 involve FSDs in these deliberations where appropriate. determine a more comprehensive strategic approach as precursor to further funding. Credit Exchange Fund FSDA is exploring the feasibility of providing support to the Credit Exchange Fund. CEF seeks to boost interbank liquidity by allowing local banks to borrow longer term funds, or forex, from international banks by guaranteeing their use of local collateral (e.g. local currency cash or T-bills). This would create efficiencies in local banking markets by allowing local banks to service their SME and other clients’ need for investment capital more comprehensively and would unlock “dead capital” on local bank balance sheets that larger banks currently deem to be worthless. 1 NB FSDA is proposing to allocate £825,000 of SIMBA funding (2.75% of programme delivery budget) to these activities

FSDA – main risk areas and mitigation strategies
The main risks for each FSDA programme pillar are set out in Section 3 but the main risk categories and proposed mitigation strategies are summarised below: Examples Mitigation Hard to secure enough of the right kind of people to manage projects (core team plus sub-programme management). Dependency on consultants (short/long term). Finding committed directors who add value. People Regional recruiting. Flexible use of consultants on drawdown contracts. Use of global networks (CGAP, DFID, Gates etc.). Outstanding relationship management and efficient delivery by FSDA. Rigorous ex ante testing of assumptions; close monitoring. Being prepared to close projects down early. Strong FSD relationship; working through other partners. Market building – FSDA’s reliance on market actors (e.g. FIs, business schools) to play their part. Innovative approaches (e.g. in building services markets) – risk of going up blind alleys. Distances: difficult to exert and sustain momentum for change at a distance. Right strategies but too slow for SIMBA timeframe (e.g. setting up new institutions). Strategic choices Broad FSDA scope will place heavy burden on procurement systems and slow down implementation. Failure to leverage in co-funding will materially limit impact. Difficult to get good quality data linking FSDA inputs to market impacts. Outstanding project management. Openness and flexibility in dealing with funding partner. Outsource some admin functions permanently to service provider. Strong focus on M&E throughout. Programme Management

FSDA in context. Four sets of interrelated ‘mega-trends’ are driving Africa’s future
Demography Youth bulge: 70% of Africans are under 30, with nearly a third of Africans between ages 15 and 29. This demographic dividend will both fuel and necessitate inclusive growth. In Kenya, job creation will still trail the number of young people coming to the market “even if the economy grows at more than 10% annually.“1 Urbanisation: For the first time, over half of all Africans will live in cities (60% by 2050), which will provide opportunities for growth but also strain infrastructure. Economy Rapid but uneven growth: While GDP is growing at over 5% in SSA, growth is uneven across countries, e.g., South Africa at 2.6% v. Nigeria at 7.1%, and within countries, driving inequality. Expanding middle class: The number of middle-class Africans more than doubled from 1990 to 2010 and continues to rise. However, 67% of the new ‘middle class’ spend just $2 to $4 per day. Technology Increasing connectivity: Mobile phone penetration will pass 80% in Internet access lags but is increasing rapidly, with social networking and e- commerce participation. The rise of ‘Big Data’: Partly due to mobile phone penetration, availability of consumer information is growing rapidly, along with the technology to capture and utilise it. “Topography” Resource riches: SSA’s growth is underpinned by its resources – oil and gas and minerals but also agricultural land. These attract big companies and these will determine economic outcomes in SSA . Regional integration: Only 12% of African trade is within the region. However, informal trade is higher and intra-African investment and other informal linkages seem to be increasing. 1 The East African 6th July 2013

FSDA in context. These African trends create challenges
as well as opportunities for Africa’s financial institutions Challenges Opportunities Financial exclusion: How to serve the urban and rural poor, the young and the new ”middle class” and thus help reduce economic inequality? Stagnation: How to keep up with the needs of an increasingly sophisticated and dynamic private sector, given limited skills and information? Competition: How to deal with the certain prospect of increased competition (at the high end of the market) from other financial institutions as well as new entrants (MNOs, funds)? Fragmentation: How to take advantage of opportunities to expand regionally, perhaps into faster growth markets, and avoid being trapped in subscale, domestic markets. Market expansion: Young, urban and increasingly middle class households represent a vast market opportunity for financial institutions. Innovation: As economies expand, and information improves, opportunities arise to offer a wider range of financial products – if institutions can develop, market and manage them. Collaboration: Financial institutions can increase efficiency and reach by partnering with agents, complementary service providers and others. Cross-border adaptation: Financial institutions can learn from and build on the experience of peers in more advanced markets.

Limited access to financial services Poor institutional capacity
FSDA in context. Africa’s financial markets are yet to fully address challenges or seize opportunities Financial intermediation has increased steadily across most of Africa, but most of the growth has been at the top of the market: Only 24% of African adults have a bank account. While nearly 80% of Africans use mobile phones, only 16% of Africans currently use mobile payments. Limited access to financial services Underserved sectors Agriculture accounts for ~30% of Africa’s GDP and employs ~65% of its workers, but receives less than less than 10% of all bank credit. Access to other financial services, such as insurance (at 1% penetration across SSA, excluding S Africa) and housing finance (only 3 SSA countries have mortgage to debt ratio of more than 5%), remains very low in most African countries, with services concentrated at top of market. Limited information Financial markets’ ability to address the needs of the excluded and underserved is constrained by a lack of information on markets and potential clients. Over 60% of FIs interviewed in the course of developing this strategy cited a lack of market and consumer information as key constraint. Poor institutional capacity Financial markets’ are also constrained by a lack of internal capacity. Of 37 FIs interviewed by FSDA, all cited internal factors as major constraints.

FSDA in context. Donors and financial sector development in Africa
FSDA in context. Donors and financial sector development in Africa. The FSD network. Data on microfinance funding may be indicative of trends in funding for FSD overall.1 Some $2.6bn of cross-border funding was committed to SSA as at end 2011, an increase of $0.5bn over 2009. Five countries (Kenya, Ethiopia, Ghana, Tanzania and Uganda) enjoyed commitments of between $ m. Capacity building accounts for just under 25% of total commitments (the bulk being debt for refinancing). The most popular funding purposes were rural/agricultural finance, responsible finance, mobile/branchless banking. The donor dialogue in FSD in SSA is quite vibrant. The Alliance for Financial Inclusion reported that, as at end 2012, 14 of the 25 countries which had made financial inclusion commitments under the Maya Declaration were from SSA. The World Bank has called on development partners to invest in capacity development and financial sector deepening and to make “greater use of instruments that work directly with the private sector to incentivize and support innovation.” The FSD network DFID has committed £220m2 to financial sector development in Africa, of which £170m is through financial sector deepening “trusts”, or FSDs. Two of the FSDs are regional (FSDA and FinMark Trust, based in South Africa). The other 8 are country-based FSDs, confined to operating in their markets (Kenya, Nigeria, Uganda, Rwanda, Tanzania, Zambia, Mozambique and Malawi (in development)). Like FSDA, these are market development agencies but have different priorities and use different modalities to achieve their objectives. Their rootedness in their markets is a key reason for their success. The diversity of the FSDs, spread across Africa, creates a problem and an opportunity. The problem is that, being busy and country-focused, they do not work well as a network. It means they miss opportunities to share insights and achieve operating synergies (e.g. co-fund research). External partners wishing to engage in more than one FSD country would have to engage bilaterally with each FSD. The opportunity, which FSDA is taking, is to remedy this by putting in place a system of communication and knowledge exchange (including regular network meetings) and by providing a central focal point for external partners, should they need this. 1 CGAP: 2012 Survey on Cross-border Funding to Microfinance 2 includes prospective commitment for Malawi, not yet approved

FSDA in context – some implications for programming
The diversity of the continent and the range of different needs of whole countries but within countries too create near-limitless opportunities for different kinds of intervention by FSDA . FSDA’s strategy should have a strong conceptual structure and a clearly defined operational philosophy. But FSDA also needs the space to be able to take advantage of opportunities as they arise – these could be quite varied - and should avoid sticking too rigidly to a pre-agreed strategy in the interests of “focus”. The strength of donor support for FSD in SSA suggests it should not be too difficult for FSDA to raise co-funding for catalytic initiatives. However it also suggests that FSDA should be quite resolute in targeting areas of genuine need – i.e. additionality. This might involve building capacity in smaller, less developed countries, supporting underinvested sectors and poorer population groups, and so on. It may be more difficult to achieve progress in these areas but successes, when they come, will be truly innovative. The prospect of sustained growth across SSA is good news for inclusion and FSDA should support growth-related initiatives primarily to boost job creation. But it should also be attentive to the uneven dynamics of the growth that is taking place and seek out investment opportunities that would encourage inclusive growth. Finance has been shown to reduce inequality.1 Big companies are likely to shape economic outcomes in Africa in the coming years and FSDA should look for opportunities to work with them (e.g. supply chain finance). There is a compelling opportunity to make the FSD network function better as a “collective asset”. As a collective they are a major force, relative to other donors, in the grant-giving arena. 1 e.g. Rajan and Zingales (2003)

Table of contents Key elements of Strategic Plan
Detailed implementation plans Skills development and training (Pillar 1) Knowledge and evidence (Pillar 2) Thematic programmes (Pillar 3) Regional platform (Pillar 4)

FSD Africa’s programme structure
“African financial markets that are responsive to the broader developmental needs of African economies and people ” Vision Skills, capacity and performance of financial institutions and financial sector professionals across Africa enhanced Transformative information on underserved markets generated, disseminated and used by financial sector stakeholders Targeted, market building interventions in priority areas launched and scaled regionally Regional platform established to transfer skills, knowledge and technology across countries and coordinate efforts across programmes Outputs “ To be a resource to facilitate innovation, skills development and research to encourage the development of African financial markets that are robust and inclusive ” Mission Pillar 1. Skills Development and Training Pillar 2. Knowledge and Evidence Pillar 3. Thematic Programmes Programmes Pillar 4. Regional Platform

FSD Africa’s programme synergies
FSDA supports institutions receiving skills support to move into priority areas FSDA directs some skills support to institutions working in thematic programme areas 1 2 Skills, capacity and performance of financial institutions across Africa enhanced Targeted, market building interventions in priority areas launched and scaled regionally FSDA identifies areas of study from interactions with beneficiaries of skills development support FSDA applies research to develop and refine interventions in thematic areas FSDA identifies research gaps and fills them in thematic priority areas FSDA collects further information on capacity building market and applies it to skills programme FSD offices and FSDA share knowledge from skills development programmes FSDA uses platform to rally support and advocate for thematic priority areas 3 4 Transformative information on underserved markets generated, disseminated and used by financial institutions Regional platform established to transfer skills, knowledge and technology across countries and coordinate efforts across programmes Areas of interest for research identified from actors participating in platform Information shared through regional platform, including forums, events, etc.

FSD Africa will adhere to a clear
set of principles and intervention criteria (1/2) Investments will be justified by whether they address components or characteristics of the market that are weak or missing. FSDA will act as a catalyst rather than a replacement for markets, “crowding” in private sector actors. In return for financial support, grantees (e.g. FIs) will be encouraged to act in ways that benefit the market for all participants. Build sustainable markets FSDA will prioritise programmes or institutions that can reach scale – either directly or indirectly via demonstration effects. Smaller innovations can be disruptive and game-changing so FSDA will support some of these. “Transformative” – for the financial institution and/or for the market; “transformative” implies strategic significance, so there needs to be strong evidence of CEO/Board buy-in. Aim for transformative change Maintain focus on under-served beneficiaries FSDA will seek out opportunities to invest in projects that address economic inequality directly . Market development activities may be indirect, but clear logical pathway must always be maintained between activities and end beneficiaries, i.e. under-served market segments. FSDA will support technology-led innovation for service delivery to under-served market segments. FSDA’s investments should have regional logic - either (i) by their very nature (e.g., coordination benefits from regional harmonisation) or (ii) by their approach (e.g. unlocking economies of scale from regional expansion of firms). Research will be multi-country in nature so as to facilitate knowledge sharing and best practices between countries. FSDA will look for opportunities to promote financial sector development issues at level of regional organisations (e.g., regional economic communities industry associations etc.). Pursue regional agenda

Identify and collaborate with strategically important partners
FSD Africa will adhere to a clear set of principles and intervention criteria (2/2) Look to leverage resources of other actors (public and private) for greater impact. Partner with (financial and non-financial) institutions that are aligned with FSDA vision and mission. Build partnerships with existing institutions, including FSDs, where relevant and possible, rather than starting afresh. Choose partners that can achieve one or both of: (i) scale and (ii) innovation. Recognise where others are better positioned to intervene and distinguish between areas overcrowded by actors and those where increased coordination can enhance existing involvement. Pursue complementary activities, and avoid any overlap with donors, country FSDs, and other partners. Identify and collaborate with strategically important partners Add value to country FSDs Support and co-invest with country FSDs in design and delivery of programmes, where possible. Enable coordinated activity and aggregate learnings across network of country FSDs. Adapt to diversity of African markets FSDA will adapt approach to different markets according to (i) stage of financial sector development (ii) macro-economic climate, (iii) social and cultural environment, etc. It will engage innovatively in smaller, undeveloped markets which do not have an FSD . Involve stakeholders from a diversity of perspectives, e.g., including non-financial, non-governmental, non-donor institutions, representatives of underserved segments. Develop African talent Commit to recruitment and development of local staff. Engage African consultants wherever possible, and promote their growth. Bring in international expertise where necessary, but always include local elements.

Partnership strategy (1/4)
The successful execution of FSDA’s strategy is dependent on FSDA being able to broker and sustain multiple partnerships of many different kinds – private sector, governmental, NGO and technical. The partnership ethos is core to FSDA’s philosophy: Risk sharing and mutual commitment are considered to be critical for successful change management programmes. Top quality knowledge-based partnerships are needed in order to create the incentives for effective knowledge exchange. Co-funding, whether at the FSDA level or at project level, is needed in order to maximise the impact of limited SIMBA resources and entrench sustainability. Fundamentally, FSDA believes that partnerships produce better impact because they can be an efficient way to marshal intellectual and financial capacity from the best sources in order to address particular challenges. Because it has a regional mandate, FSDA aims to crystallise long-term partnerships with organisations (e.g. regional banking groups or non-financial sector multinationals) who have a pan-African vision and operate at scale. FSDA will be a “low ego” partner. It is more interested in the achievement of outstanding results than in the promotion of its own brand . FSDA intends to offer its corporate structure to partners who wish to take advantage of its user-friendly, regionally-oriented contracting platform. This will allow them to operationalise their funding without having to set up unnecessary bureaucratic structures in advance. FSDA will actively seek out African partnerships – both funders and technical partners as well as FIs . Evidence of the success of its partnership strategy will include: Long term partnerships with private sector organisations where repeat collaboration indicates that FSDA’s contribution has been relevant and value-adding. Research and learning programmes having catalysed new and sustainable, knowledge-based partnerships between the private sector and the research environment, or academia. Financial resources leveraged into FSDA at scale.

Although this may change over time, the three most important partners for FSDA are currently DFID, CGAP and the FSD network: Provider of core funding: SIMBA funding, plus further funding for post-SIMBA activities (subject to new Business Case). Connector: as a leading donor in FSD, DFID constantly attracts interest from individuals and organisations (often global) interested in African financial markets and can therefore effect valuable introductions for FSDA. DFID is also able to make cross-sectoral connections between FSD and other private sector development initiatives. It also has convening power that could be of great benefit to FSDA, e.g. research dissemination. Provider of technical support: e.g. on impact evaluation, procurement, procedures etc. Intellectual partner: CGAP has a major stake in FSDA’s success , given its financial inclusion mandate and the fact that the vision of the two organisations is remarkably similar. CGAP can make a powerful intellectual contribution to the design and evaluation of FSDA programmes. FSDA/FSD insights will provide material for CGAP’s global knowledge-sharing. Access to people: CGAP may be able to facilitate FSDA’s access to technical experts across the world. Funding partner: in certain FSDA programmes (e.g. technology or agriculture finance –related), there may be opportunities for CGAP to bring its financial resources alongside FSDA’s. Raison d’être: the FSD network provides FSDA with part of its raison d’être. Therefore much of what FSDA does will revolve around the FSDs. Local networks and insights: this is the capital that underpins the FSD network and is of great value to both FSDA and other stakeholders with an interest in their markets. The FSDs can be a channel for FSDA or others’ interventions or, by supporting due diligence, can strengthen the quality of interventions. Funding partners: FSDs may provide funding towards FSDA-led initiatives. FSDs Because of their role as de facto promoters of FSDA, these organisations will be represented in the governance structure of FSDA

Each of FSDA’s sub-programmes will have its own priority list of partners but FSDA also envisages the possibility of working closely with these (NB list excludes African FIs who are the target focus of FSDA’s work anyway) : Type of partner Potential partner Rationale Foundations and donor funding partners MasterCard Foundation Clear focus on microfinance and skills development, especially leadership. Restricted to funding in SSA. Capable of funding at scale. Gates Foundation Likely overlap of strategic interest around digital finance. Capable of funding at scale. FSDA may be able to get Gates indirect exposure to SSA countries that are not priorities. AFD Would be logical partner (with CGAP) for Francophone strategy Rockefeller/Gatsby/Ford Innovative financing in rural finance and agriculture USAID Agriculture focus Tony Elemelu Focus on African management development and Nigeria Other donors/donor funded organisations Alliance for Financial Inclusion (AFI) Focus on financial inclusion. Complementarity as their focus is on policymakers and global network management whereas FSDA’s is on micro and meso level and on in-country initiatives UNCDF Complementary interests in both inclusive payments and LICs. UNCDF is also interested in supporting FSD model of market development in other countries. TradeMark East Africa Not prioritising trade finance and would be keen to partner with FSDA in this growth-related area. World Bank Numerous overlaps especially around regional integration and “finance for growth”

Type of partner Potential partner Rationale DFIs/IFIs AfDB Leading African development bank. FSDA may be able to help implementation. IFC Overlaps, especially around MF and m-payments but also inclusive finance CDC (and other DFIs) FSDA could provide TA, or a way of accessing “harder to reach” dealflow Technical partners BFA Clear expertise in payments and G2P, and other areas. Has been motivated to produce concept papers already for FSDA. Genesis Leading Africa-based consulting firm with expertise in strategy consulting for banks. GIZ Several overlapping thematic areas of interest and also geographies TNS Research Surveys Pan-African market research player, deep FinScope experience Centre for Affordable Housing Finance Housing finance research centre, based in Johannesburg Non-finance multinationals Yara Value chain finance for agriculture. Has been in the forefront of SAGCOT discussions in Tanzania Diageo Has an interest in developing local supply chains in Africa British Gas Extractive industry players increasingly required to maximise local content in procurement Education partners Global Business School Network Has indicated willingness to partner on Centres of Excellence strategy

Youth, women’s access to finance and SME: cross-cutting themes
FSDA has considered, and (for now) rejected, the idea of establishing special programmes dedicated to youth, gender or SME finance. Vital as these are, it views them as cross-cutting issues which will be given due weight in the roll-out of the strategies for each pillar. It should therefore be relatively easy for FSDA to construct a narrative for what it is doing in these areas, if it needed to do so. Considerations Possible FSDA narrative Massive demographic issue for SSA Exclusion among youth exceptionally high Definitional problems – how old is “youth”? Prone to government gimmicks How can this “market” be made profitable? Legal problems – not entitled to bank account Technology-savvy Working with FIs to (i) explore market potential for youth finance (ii) on youth savings or transactions products Training activities , if entry level, target youth Segmental insights via research work leads to policy change and innovation Youth Gender gap in A2F in SSA is not massive but it is persistent Systemic interventions likely to result in more women being included than female-targeted interventions…. ….although G2P initiatives will drive up numbers of women included (NB S Africa) Which women? Women farmers? SMEs etc Crowded space (e.g. IFC) – what is FSDA’s value proposition? Not as much of an orphan as agriculture finance Definitional issues, poor data Broad challenges – too much for FSDA to focus on to do well FSDA supports FI innovation that targets women (e.g. WWB) Support for women in leadership positions in FIs G2P work targets women FSDA encourages gender segmentations in social performance measurement Women’s access to finance FSDA supports change management in SME (e.g. regional GrowthCap) Services suppliers typically SMEs Regional research captures SME themes (e.g. leasing) Credit market development work helps SMEs SME finance

Uganda and Nigeria Uganda Nigeria Possible opportunities:
DFID offices in Uganda and Nigeria have committed £1m and £2m respectively to SIMBA so that FSDA achieves particular impacts in those markets. Working in both Uganda and Nigeria requires effective collaboration with the local FSDs in order to ensure complementarities and avoid confusing the local market with two FSD brands . Uganda Nigeria Possible opportunities: Working with FIs on strategy and skills development. Promising early discussions with Opportunity, Finca and DFCU. Collaboration with GIZ on consumer protection. Re-purposing a DFID SME grants programme in N Uganda. Agriculture finance. Strategic support to new programme. Challenges: Distance; new FSD programme will (rightly) prioritise its own objectives as it gets going. FSD relationship: Strong support from managers of new programme (FSIP), KPMG and Nathan for co-working. Details to be worked through. Possible opportunities: Working with FIs on strategy and skills e.g. in MFB sector. Promising discussions with Diamond. Research (e.g. scoping study on Centres of Excellence to have a specific Nigeria chapter). Possible funding collaboration with EFInA on agent banking roll-out (TBD). Finca greenfield. Challenges: Distance and governance; massive scale of opportunity/need; difficult market to initiate change. FSD relationship: EFInA broadly supportive of FSDA pursuing complementary strategy but has limited capacity to “hand hold”.

FSD Africa’s Pillar 1 – Skills development and training
“African financial markets that are responsive to the broader developmental needs of African economies and people ” Vision “ To be a resource to facilitate innovation, skills development and research to encourage the development of African financial markets that are robust and inclusive ” Mission 1 Skills, capacity and performance of financial institutions and financial sector professionals across Africa enhanced Transformative information on underserved markets generated, disseminated and used by financial sector stakeholders Targeted, market building interventions in priority areas launched and scaled regionally Regional platform established to transfer skills, knowledge and technology across countries and coordinate efforts across programmes Outputs

Pillar 1 – Skills development and training.
Key assumptions driving design, delivery and impact Many FIs lack the organisational capacity to expand due to constraints in both the supply of and demand for services. Investing in skills development, including buying in knowledge-based services from external suppliers, increases efficiency and productivity of FIs reducing the transaction costs of innovating and delivering financial services to poor people. FIs under-invest in training (due to concerns about staff retention, because of a perceived lack of availability of qualified trainers, etc.) and consulting (due to market gaps in availability, affordability, etc.). Training is not standardised or certified, and there are challenges with both content and methodology. Increased supply of skilled labour reduces costs to FIs . There is insufficient supply of commercial skills development and knowledge based services regionally to meet likely increased demand for these services . Taking a regional approach to market-building is appropriate. Financial markets in Africa are fragmented, i.e. small, and this reduces the scope for service providers to be able to build a sustainable business in their domestic market. This applies equally to formal training establishments (like universities or business schools) as to commercial providers of technical services. Regional integration efforts raise the prospect, in future, of free movement of labour across economic regions. More standardisation in financial qualifications would make it easier for FIs to source talent from across a region. FIs themselves are already expanding regionally – typically from the larger, better-resourced countries in the region (e.g. Nigeria, Kenya) to the smaller, less well-resourced countries. They need to be able to source skills and services locally in order to justify their financial investment.

Pillar 1: Skills Development and Training
Inputs, activities, stakeholders and impact Inputs Pillar 1: Skills Development and Training Pillar 1 results Impact Key activities Participants Near-term Long-term Financial: £13m over 5 years – plus matched funding from FIs, donor co-investments Human: FSDA project management consultants; bought-in TA Research: Needs analysis, market studies, action learning (analytics), skills gap analysis Provide TA funding to at least 20 FIs, on a co-funded basis Use different routes to market to source investments – FSDs, challenge funds etc. Support market-building efforts in 3 industries – coaching (HR), data, e-training Develop strategic partnerships with African training institutes Broker relationships with international professional training entities FSD country programmes Financial institutions providers Investors and donors Regional training, consulting and research firms Industry associations and bankers’ institutes Regional training institutes Increased efficiency, outreach and sustainability of supported FIs, directly resulting in… …3m people being brought into formal finance Improved quality and scope of formal training programmes – 5,000 people trained FIs benefit from coaching and other services New FI champions created; success stories catalyse further investment Better understanding of effective routes to market for TA FIs more aware of existence and value of quality service providers Better industry coordination on skills development Better data on links between training and career prospects Enhanced financial market characteristics – innovation, diversity of supply, competition, knowledge-based services available - as a result of stronger FIs having access to better quality staff and as a result of increased effective demand for services Number of FIs supported with TA for skills development and with improved performance, (a) operating cost ratios, (b) return on assets, (c) PAR30 Number of FI s who say they rely less on donor subsidy for skills development and knowledge-based services Successful regional roll-out of at least one proven approach to capacity building Supply of skilled labour to the financial sector: (a) number of people receiving formal training, (b) number of partnerships with regional centres of excellence Number of FI s encouraged to take up commercial services in targeted services industries (“pump priming”); number of service providers who benefit from FSDA efforts to stimulate supply Key indicators

Pillar 1 – Skills development and training. Summarised 5 year budget.
£’000 Change management TA grants 6,300 Own staff 1,095 Consultants 251 Other change management initiatives 1,400 General management 200 9,246 Building services markets Scoping studies 300 General market building 540 Pump priming demand 1,040 Stimulating supply 530 General support 135 2,545 Centres of Excellence 325 Engagement with Centres 527 Management costs 400 1,252 Total 13,043

Building services markets
Pillar 1 - Skills development and training. Three inter-related components. FSDA will work with: FIs to stimulate demand for skills and knowledge-based services. Regional training institutes and services companies to increase supply of trained professionals and good quality technical and services (including training) into the market. Change management: Re-purposing established FIs to address underserved markets will typically require significant organisational change. New entrants may also require support to manage change as they grow. Leadership development and training will be part of the required package of services support but so too are technical services such as data management. Formal, academic or technical training institutes (Centres of Excellence) play a complementary role alongside private training companies. Change management Centres of Excellence Building services markets Demand Supply

Pillar 1 - Skills development and training.
Key insights from scoping research. Overview Dalberg commissioned to conduct research into the market for capacity building services for FIs across SSA. Research assessed the current state of supply and demand, as well as opportunities for FSDA and the FSD network to make a decisive impact on the financial inclusion agenda through skills development and training within FIs . Methodology Cross-sector interviews: 85 interviews with FIs and Capacity Building Service Providers (CBSPs) at tiers 1, 2, and 3. Different spatial scales: FIs interviewed at the micro-level (37); meso-level (46); and macro-level (2). Five SSA markets: Evidence from Kenya, Nigeria, Senegal, Tanzania and Uganda, Key findings The findings are consistent with the CGAP (2012) and MasterCard Foundation (2012) studies. On the demand-side: a) limited internal capacity amongst FIs (e.g. lack of market information, weak mid-level management and lack of economic data) is one of the biggest barriers to financial inclusion; b) FIs are under-investing in skills development; and c) need varies by FI type, rather than by geography. On the supply-side: a) international CBSPs tend be expensive; b) a small set of promising local CBSPs is emerging; c) donor influence is distorting the market; d) there are concerns of CBSP quality; and e) a lack of information about CBSPs has weakened the market. Opportunities for FSDA Increase availability and credibility by: a) training local consulting firms and certifying them on certain topics; b) promoting regional Centres of Excellence; c) establishing twinning arrangements to share best practice; and d) developing voucher-systems for skills development services from trusted CBSPs. Increase information and awareness by: a) establishing a regional clearing house (e.g. YELP, TripAdvisor or Elance); and b) organising regional trade shows. Increase affordability by: reducing fixed costs through subsidies for training materials; e-learning options and toolkits Increase the perceived value of skills development by: conducting a research piece to illustrate value of skills development on the bottom-line of FIs.

Change management: activities and resourcing (1/2) Activities FSDA will… Originate a minimum of 20 investments in FIs over 5 years: Year 1 – 4 new FIs; Year 2 - 5, Year 3 – 6; Year 4 - 5 Build a portfolio of investments - mixture of large (e.g. regional, large national etc.) and small FIs; different institutional types – e.g. pro-poor as well as Tier 1. Seek out investments that deliver financial inclusion at scale – but not exclude investments that strengthen internal operating capacity (front and back end). Maintain a minimum investment threshold of £100,000. Use a mixture of routes to market – MF networks, FSDs, Calls for Proposals , consultants, FSDA direct origination. Work with FSDs on deal origination - paying for market scoping work, maintaining a central resource within FSDA to nudge forward origination activities, pitching for investments alongside local FSDs, co-investing alongside FSDs, involving FSDs in due diligence. Use two types of RFP (marketed in advance, may be repeated subject to demand, effectiveness etc.): Pump priming: Awards of up to £100k each to help FIs with needs assessments (may include a requirement to use local consultants) Service industry–led: larger TA grants (e.g. up to £500k) to support use of specific types of service provider (e.g. CRM) Facilitate investments (originate, design, oversee, monitor and evaluate). FSDA will always be involved in the governance arrangements.

Change management: activities and resourcing (2/2) Activities FSDA will… Invest in a range of different approaches to bring about change management as appropriate to the circumstances - peer learning, study tours, embedded advisers . FSDA will also seek to regionalise promising existing approaches to change management promoted by others. Build a database of trusted external consultants : however, FIs should ideally choose their own consultants subject to FSDA approval . Maximise linkages into other FSDA programme areas – notably other sub-pillars of Pillar 1. Disseminate learnings (via case studies) in accordance with market development principles. Resourcing FSDA will… Commit a total of £9.2 million to change management activities. £7.6 million will be invested in individual FIs; £1.6 million will be used to support other, regional approaches to change management (ideally with co-financing from FSDs) where these appear innovative or likely to yield high impact. FSDA will hire an in-house team of consultants – 3 full time hires – and will also use external consultants. In-house team will be recruited from strategy/change management consulting profession .

Dalberg market scoping (June 2013)
Pillar 1 - Skills development and training. Change management: delivery options. Dalberg market scoping (June 2013) MicroSave: rapid assessment study for FSD Kenya (Oct 2012 – Nb. Kenya only) Dalberg report points to high demand for support in area of market information and customer service Mid-level HR, professional development, product development and strategic planning also featured highly Strategic nature of these stated needs suggests FIs recognise they are in “make or break” times because the market is changing so rapidly. They acknowledge their own weak capacity for managing what little talent there is in the market. Implication is that “quick technical fixes” will not do FSDA will therefore seek out long term, strategic engagements with its investees. Needs assessments expected to reveal requirement for multiple interventions at the same institution. The comprehensive, and long-term, nature of these interventions is why FSDA has called this sub-pillar “change management.” Training will undoubtedly play a part in these assignments but so will other services. TORs: “to rapidly assess the scale and scope of institutional capacity building needs in a range of selected mass-market focused financial institutions.” 8 FIs reviewed in some depth. Broad range of needs but some commonly cited needs were: Product development. Business plan development. Board training/exposure. Institutional culture review/change. Market research internal training. Common requirement for support around deposit mobilisation given high borrowing costs. Conservative cost estimates were in the range $ k per institution (excluding support for market research or pilots). FIs experienced some difficulty in articulating needs MicroSave recommended the use of challenge funds for large institutions, a dedicated delivery channels window and a small projects window to deal with urgent or scoping-type needs.

Pillar 1 - Skills development and training
Change management: investment evaluation process FSDA investment evaluation process Investment principles and criteria (selected) Investee sends Concept Note to FSDA - reviewed by FSDA team. Revised Concept Note forms basis of a short Screening Paper – this is reviewed by the Investment Committee (IC). If approved, Investment Committee: Authorises expenditure on due diligence. (DD), up to agreed maximum level of delegated authority. Specifies areas to be covered in DD. DD papers reviewed at interim and final stages by IC. IC either rejects or approves investment for final Board approval. Board rejects or approves. FSDA disburses. Board receives copies of all papers. Board should be prepared to meet on an ad hoc basis to approve investments if needed. Should be consistent with FSDA General Investment Principles and Criteria. Scale. Minimum FSDA investment £100,000. Must boost inclusion (new to formal finance) by at least 100,000 directly or indirectly. NB. FSDA model (NB. not “gating” criteria). Co-pay arrangements: Ideally 50/50 cash contribution – must come from beneficiary institution. FSDA will also consider more flexible arrangements for investee share (e.g. loan). Investee must demonstrate capacity to absorb TA. Investee must have credible strategy for measuring impact and be prepared to share results . FSDA 5 year budget model uses these metrics: Small investments £250,000 FSDA contribution (£500,000 total project size) 150,000 new clients over 5 years; £3.30 (US$5) per new client Large investments £750,000 FSDA contribution (£500,000 total project size) 500,000 new clients over 5 years; £3.00 (US$4.50) per new client

Change management: catalysing activity by other partners. While FSDA will focus initially on developing its own pipeline of investment opportunities, FSDA will also selectively look to catalyse change management approaches initiated by others. It will prioritise those that: Have an explicitly regional dimension. Give FSDA exposure to new market segments e.g. which are not priorities under the current strategic plan. Appear intrinsically innovative. Potential SME-related opportunities for FSDA: Regionalisation of GrowthCap GrowthCap is a new programme of FSDK. Funded with an initial $2.865m over 3 years, it provides funding to enable 5/6 Kenyan banks to reorganise internal management processes with a view to be able to service SMEs more effectively. If successful in Kenya, this approach could be replicated in other EAC countries. FSDA could provide seed funding to support this regionalisation and other FSDs could potentially co-fund in their markets. Funding for Business Partners’ TA facility Business Partners is a provider of risk capital to SMEs. Based in South Africa, it has a presence in East Africa (Kenya, Rwanda) through funds it manages on behalf of DFIs. It also provides TA funding to its investees but not as grants. Instead, these are subordinated loans and so , once repaid, the TA can be redeployed in other SMEs. This novel approach is attractive as a more sustainable and business-minded model for TA provision.

Change management: indicative timeline H2 2013/14 2014/15 2015/16 2016/17 2017/18 First three investments approved 4th investment in due diligence At least 1 promising investment (or promising) prospect) originated through FSD channel Call for applications from FIs for needs assessments Put out general RFP for consulting firms 5 new investments approved Substantial co-marketing activity with other FSDs Call for applications from FIs for service-industry led interventions , e.g. CRM (Q4) Substantial growth in Concept Paper pipeline to allow for failures in due diligence Assess proposals for/initiate regionalisation of independently managed change management approaches 6 new investments approved Repeat needs assessment Call for Proposals (if necessary) Initial results start to come through from Year 1 cohort Disseminate learnings 5 new investments approved Impact assessments on earlier investments Disseminate learnings No new investments approved (NB SIMBA funding is for four years) Impact assessments on earlier investments Disseminate learnings

Likelihood of occurrence
Pillar 1 - Skills development and training. Change management: implementation risks Likelihood of occurrence Ease of mitigation Risk Detail Good quality do not get to hear about FSDA’s offer or are too busy to focus on change management. FIs strategic priorities may change and withdraw from an investment process Lack of buy-in from FI beneficiaries Conversion rate of TA into new clients is slower than expected Initial expectations about how quickly the strategies being funded would reach the targeted number of new clients prove over-optimistic. Procurement delays, the difficulty of securing scarce consulting resource in a timely way, or internal organisational delays within the FI result in impact being delayed Project implementation delays slow rate of new client uptake Difficult to secure meaningful co-pay arrangements Failure to secure meaningful co-pay arrangements from FIs would undermine the financial viability of this part of FSDA’s plan High Low FSDA’s impact targets in this area are dependent on numerous risks not arising or being mitigated. Those mentioned above are among the more significant but others include FDSA’s possible failure to hire a team of in-house consultants or lack of buy-in/commitment from FSDs. Above all, there is little good quality data to validate or disprove the assumptions in the plan underlying the rate which FIs are able to convert TA into new clients. Furthermore, innovations may perform very strongly or flop entirely, making predictions difficult to make. There will also be trade-offs to consider as the project unfolds – such as whether to avoid making TA investments in projects that do not directly contribute client numbers (e.g. risk management) in favour of others than do (e.g. new delivery channels), or in small companies in favour of large. Since FSDA is able to originate from across SSA suggests it should be able to pick the best FI partners to work with. The need to deliver results in a time-bound project may reduce the time for comprehensive market scoping.

Informing & communicating Setting & enforcing rules
Pillar 1 – Building services markets FSDA will invest in building services markets as a key supporting function for financial markets. Dalberg research has highlighted a considerable gap between supply and demand for business services due to: Availability of services. Good quality, local service providers either do not exist, are not known or do not have credibility. Quality of services. FIs express dissatisfaction with business services received. Affordability of services. International firms’ fees are significantly higher than local firms’. This disadvantages Tier 2 buyers. Awareness of services. Links between demand and (local) supply are weak. Perception of value. FIs do not fully value certain business services, either there is no tradition of investing in them, or because they genuinely believe they will not get a return from investing in them. African FIs - Tier 1 as well as Tier 2 – spend half as much in absolute dollar terms on training, consulting and coaching than banks in other regions. Market system structure (adapted from Springfield Centre) SUPPORTING FUNCTIONS Information Infrastructure Informing & communicating Related services Demand CORE Supply Setting & enforcing rules Regulations Informal rules & norms Standards Laws RULES

Pillar 1 – Building services markets
Pillar 1 – Building services markets. What FSDA’s market building approach entails. Market building is about understanding what shapes the way markets operate and intervening in order to cause markets to operate differently (e.g. in a more pro-poor way ), All markets are different, so different interventions will be required for each industry. However, market-building principles are the same. These will be adopted by FSDA as it builds services markets: Analysis as a precursor to action. Importance of building a solid understanding of the market system and its constraints. Facilitation role: “crowd in” market players and activity, avoid becoming a market player. Financial markets are complex market systems, being highly regulated and heavily dependent on access to information. Market facilitators therefore have many levers to pull. Services markets are much simpler systems, lightly regulated and fairly unstructured. So the facilitator’s task is to focus on the core market function – to facilitate effective supply and demand. FSDA ‘s strategy will therefore emphasise: Building awareness - introducing buyers and sellers (the “marketplace” function) but also helping potential buyers of services understand the value of investing in them. Pump priming demand: stimulating demand through matched grants to FIs. Stimulating supply: through grants to suppliers for business plan development and other support. FSDA will also work to strengthen the quality of supply of services through training and accreditation as appropriate to each industry . Scoping studies will guide the detailed interventions to be adopted. These will identify: Industry structures. Information constraints. Leverage points for FSDA as market facilitator.

Executive coaching and strategic HR Data management and analytics
Pillar 1 – Building services markets. Initial focus on three services markets relevant to the financial industry. FSDA will initially invest in developing three markets that are particularly relevant to the financial industry. These markets have also been selected because they are synergistic with other pillars of FSDA’s work. Over time, FSDA will assess the traction it achieves with these three markets and decide whether to continue with them or not. The logic of investing in services markets (and in these three in particular) is strong. However, the positive impact of donor funding on these services markets will take time to be achieved and the consequential impact of these better functioning services markets on financial inclusion is hard to quantify ex ante. Simplified rationale: Executive coaching and strategic HR E-training Data management and analytics Enhanced skills allow FIs to innovate and compete more effectively. As regulated institutions, whose licence to operate is based on being able to demonstrate they have people with the appropriate skills to be able to manage their affairs prudently, FIs have a strong interest in maintaining skills at a minimum level. Badly managed FIs eventually lose the trust of their customers who expect near-faultless service. Banks must be “virtuosos of the every day. They must “do” routine extremely well” (BAI , 2001). The high informational requirement in financial services, which makes searching, collecting and processing information expensive, leading to high transaction costs, means FIs should achieve high returns from investing in managing data more effectively. MicroSave (to FSDs, January 2013): “Market development requires time, good people and multi-faceted interventions, not necessarily enormous resources”

Pillar 1 – Building services markets. Services market #1 - Executive coaching Definition Executive Coaching offers a: ‘one-to-one mechanism to provide targeted support to leaders to address the specific challenges they face in their own operating context.’1 Executive Coaching is: ‘designed to facilitate professional and leadership development and aims to achieve improved business performance and individual growth.’2 Specific professional goals include: ‘enhancing strategic thinking, performance management, organisational effectiveness, managing change, managing career transition, interpersonal and professional communication, and building effective teams within an organisation.’3 Key issues, trends and gaps Internal capacity constraints identified by FIs across SSA as their primary challenge. Specific issues around: a) strategic planning and leadership; b) corporate governance; c) strategic/mid-level HR.4.5 Market dysfunction Scoping study illustrates a widespread appreciation of and stated demand for Executive Coaching, but limited effective demand amongst all tiers of FIs across SSA (except in more mature markets, such as Kenya).6 Crowding-out by donor subsidy and international experts has contributed to few, local and high quality suppliers of Executive Coaching, Rationale for FSDA intervention Value-add: M4P approach in a new niche. Partners: Creative Metier and Strathmore Business SchooL are both well-positioned to support. Regional: Potential to develop pan-SSA cadre of coaches FSDA fit: Strong link to Pillar 1, reasonable link to Pillar 3. Risks associated with FSDA intervention FIs don’t see the business value-add; it remains a CEO perk. Indicative impacts Executive Coaching valued by Tier 1, 2 and 3 FIs and seen as a tool to deliver success rather than a luxury once success has been achieved. FI executives better enabled to encourage their organisations to deliver financial products and services to underserved segments across SSA. Closure of the ‘information gap’ between FIs demanding Executive Coaching and providers Executive Coaching. Creation of new cadre of quality African Executive coaches. 1 Creative Metier (2013); 2 Creative Metier (2013); 3 Creative Metier (2013); 4 Dalberg (2013); 5 CGAP (2012); 6 Dalberg (2013)

Pillar 1 – Building services markets. Services market #2 – Data management and analytics FIs are sitting on massive amounts of data which they do not manage effectively. Big data – “ a growing torrent” (McKinsey) – is both a threat and the key to productivity and competitiveness. Managing big data effectively enables experimentation and creates new business models, allows firms to create highly specific segmentations and supports process automation – all critically important for client-centric financial inclusion strategies. Emergence of digital channels for financial services underpins importance of effective and strategic data management Shortage of analytical talent: demand for “deep analytical positions” in the US could outstrip supply by 140, ,000 positions by 2018 (McKinsey). Analytics is the process of examining large amounts of structured and unstructured data to derive business benefits such as more effective marketing. FSDA will work with FIs, Customer Relationship Management (CRM) service providers, marketing consultancies and data analysts. We will provide incentives to support data mining and encourage integration of FinScope with existing transactional data and segmentations. We will work with CRM providers to raise awareness of the opportunities in financial inclusion and broker relationships between FIs and CRM providers to address weaknesses in IT systems. Indicative impacts FIs better able to develop client-centric strategies and innovate. CRM providers aware of opportunities in financial inclusion. FSDs’ greater understanding of data processes within banks – greater uptake of FinScope. Customer CHANNELS /Fax Correspondence POS Terminal ATM Internet Banking Mobile Banking Contact Centre Branch Operations

Pillar 1 – Building services markets. Services market #3 – E-training
Introduction E-training involves the provision of skills development and training to groups or individuals through ICT systems where the teachers and students are either apart or the teaching material is provided virtually. Corporate e-training is one of the fastest growing markets across the education industry.1 A $56.2 billion global market today, it is expected to grow to a $107 billion market by 2015. FSDA will consider support for a broad range of innovative training delivery methods, seeking out partnerships with SSA-based providers and donor funded initiatives such as the Centre for Education Innovations. E-training advantages Compared to equivalent classroom modules, E-training can reduce teaching time by between 25% and 60%. 85% of the cost of classroom training is spent on its delivery. Corporations can save up to 70% when they replace instructor-based training with e-training. According to a 2009 study from the UK’s Department of Education: “Students who took all or part of their class online performed better, on average, than those taking the same course through traditional face-to-face instruction.”2 Market dysfunction in SSA Internal capacity constraints identified by FIs across SSA as\ their primary challenge. Specific issues around: a) strategic planning and leadership; b) corporate governance; c) strategic/mid-level HR.Nonetheless, SSA FIs significantly underspend on training relative to international counterparts. Rationale for FSDA intervention Scale/effectiveness: cost savings, scale, better outcomes Value-add: M4P approach in a new niche. Regional: Potential to deliver pan-SSA e-training. FSDA fit: Strong link to Pillar 1, reasonable link to Pillar 2. Indicative impacts E-training modules in critical areas identified, developed and utilised across SSA. New entry level qualifications and in-job training modules for staff at tier 1, 2 and 3 institutions across SSA. Financial inclusion promoted as an important theme. Significant reduction in training costs and significant increase in skills development and training as a corner-stone of FSP success. 1 Shift E-Learning (2011); 2 Shift E-Learning (2013)

Pillar 1 - Building services markets. Activities and resourcing
FSDA will… Support long term market building initiatives in 3 services markets of particular importance to the financial industry: Executive coaching and strategic HR. Training (with a particular focus on e-training). Data management and analytics. Conduct scoping studies (2 in Year 1, 1 in Year 2) to identify industry-specific leverage points for market building activities in these 3 areas Support industry associations to: Build awareness of these industries. Introduce quality standards (accreditation systems if appropriate). Build awareness of services through: Seminars, events (e.g. involving high quality speakers, international experts, international industry associations); databases; support to industry associations. Provide financial incentives to FIs to encourage them to use service providers in these 3 areas – e.g. themed RFPs, matched grants: Use early adopters as case studies; Identify service providers in these areas who can be used as a channel to FIs; Work with FSDs to: Build their awareness of these industries and their value to FIs; Identify FIs who could be incentivised to buy in these services; Provide funding directly to service providers by way of a regional challenge fund (grants or loans etc.) in 2 of these areas to strengthen operational capability and marketing. Provide funding) to ensure CGAP’s on-line survey of FIs and capacity building providers is repeated at least annually in SSA and enhanced Resourcing FSDA will… Commit a total of £2.5 million to building services markets activities. FSDA will build relationships with specialist consultants who will act as strategic knowledge partners in these areas.

Pillar 1 - Building services markets. Indicative timeline.
H2 2013/14 2014/15 2015/16 2016/17 2017/18 Executive coaching (EC) pilot scaled up Further research via scaled up EC project highlights scope for work in strategic HR field EC programme defined – investment approved Nairobi seminar series for EC to highlight importance of market Scoping studies on e-training (ET) and data management (DM) concluded Knowledge partners for ET and DM identified Pump priming grants for FIs for EC Training course material finalised for an accredited EC training programme Small grants window for TA for strategic HR needs analysis Project investment approved for ET and DM Challenge fund for DM (e.g. in CRM) Small grants window for FIs to trial ET approaches First year of formal training for EC coaches Repeat needs assessment Call for Proposals (if necessary) Initial results start to come through from Year 1 cohort Business plan or strengthening grants to ET suppliers Impact assessments on early progress on market-building Disseminate learnings 2nd window for pump priming grants for EC 2nd data management challenge fund Business plan or strengthening grants to ET suppliers Business plan or strengthening grants to ET suppliers Impact assessments Dissemination

Pillar 1 - Building services markets. Key implementation risks. Likelihood of occurrence Ease of mitigation Risk Detail Specialist services markets make it difficult for FSDA to pitch offer effectively FIs needs for some technical services may be more specialised than FSDA appreciates, making it difficult for FSDA to appear relevant to both service providers and FIs . New networks for FSDA may make it harder to achieve momentum. In the timescale of the project it will be difficult to obtain good data on the impact that services market building has had on financial inclusion FSDA needs to buy in support from specialist consultancies who share its goal of building markets. It may be difficult to find sustained support from a good quality, affordable firm. There are relatively high transactions costs associated with these interventions , many of which are individually quite small. Increasing the average investment size is probably not desirable (ie would distort markets). There may also be increased reputational risk from dealing with small, quite entrepreneurial service provider firms Difficult to find the right knowledge partners Initiating multiple interventions across 3 services markets carries execution and timing risk Achieving measurable linkages into financial inclusion will be difficult High Low As with the Change Management investments, FSDA is also exposed to the difficulties of dealing with FIs whose priorities may change or whose appetite to keep committing resource to experimental initiatives may wane. The primary implementation risk on Building Services Markets is that transaction costs will be quite high (relative to the level of investment) and impact may be low initially and difficult to measure. It will be critical for scoping studies to define the parameters of these markets clearly and to set very specific targets.

What is a Centre of Excellence?
Pillar 1 – Centres of Excellence The SIMBA Business Case calls for the establishment of “regional centres of excellence in East and West Africa to provide standardised, certified financial services training to address the acute shortage of skilled labour in the financial sector.” Major contributory factors towards this shortage (according to OPM) are: A shortage of graduates - SSA has 696 graduates per 1 million population compared with 4,766 per 1million in Asia. A scarcity of specialised financial training in the region. MasterCard research (Oliver Wyman) suggests that: For entry level, the major problem is not the shortage of graduates but that they are not job-ready. This requires a high-volume but relatively low-cost training strategy. By contrast, approx. 80% of the required investment in skills development in microfinance is for middle management and leadership. Per head, this can cost times more than training costs for entry level staff. It follows that, ideally, FSDA’s strategy should address both executive education and entry level needs. What is a Centre of Excellence? Can be defined as a shared facility for research, training and advisory support around a particular topic. A “space” where academics and industry practitioners can pool resources. Notion of “shared facility” is important: implying a collaborative effort (e.g. public/private) to achieve a superior result; and independence from vested interests. International examples:. Australia Centre for International Finance and Regulation: Australian universities and research centres. Sponsored by Commonwealth and government. Will provide post-grad training for financial sector professionals and regulators. Scotland Scottish Financial Risk Academy: At Heriot Watt University. Training and knowledge exchange activities to promote links between academia and industry. Caledonian Business School: Backed by Chartered Institute of Bankers Scotland and the UK’s CI of Securities and Investment (CISI). Germany SAFE (Sustainable Architecture of Finance in Europe) Centre of Excellence at Goethe University, Frankfurt.

Pillar 1 – Centres of Excellence
Pillar 1 – Centres of Excellence. Partnership approach to involve existing and new training institutions Detailed approach to be defined following scoping research which aims inter alia to: Map institutional infrastructure for financial training in EAC, Nigeria and Zambia. Assess effectiveness of coordinated industry efforts to address common skills gap. Identify opportunities for collaboration – with existing Centres and funding partners. FSDA will consider providing support to (i) physical and virtual Centres (ii) established and greenfield Centres. Support envisaged to cover curriculum design and scholarships but not costs of physical establishment All interventions to be rigorously tested for their demand-driven logic. Opportunities for supporting development of regional standards or accreditation will be assessed. FSDA will maximise linkages with other sub-pillars, e.g. we may provide incentives to a business school to pilot e-training approaches or train executive coaches. Initial priority for a pan-EAC training course. FSDA will explore opportunities to work with MF networks to open up their internal training academies to a wider market. We will look selectively to involve international professional/industry training entities to encourage transfer of know-how. Potential partners African skills/training institutions Strathmore, KSMS, Centre for Financial Inclusion (Pretoria), Lagos BS, GIBS, Kigali School of Finance and Banking, Makerere African capacity building initiatives African Capacity Building Foundation, MEFMI, African Management Initiative International professional development partners Global Business School Network, ifs School of Finance, Frankfurt School Potential funding partners MasterCard Foundation, Tony Elemelu Foundation, Omidyar MicroSave’s E/M Banking Academy Under this programme sub-pillar, FSDA is exploring whether to provide support to this MicroSave initiative. If successfully launched, it would become an African Centre of Excellence for innovation in digital finance, offering research and leadership development, sharing insights from across SSA. Location – E Africa, but not tied to an academic institution. Partners – IFC, UNCDF, others.

. Pillar 1 – Centres of Excellence. Activities and resourcing.
FSDA will… Conduct scoping research in EAC, Zambia and Nigeria and act on recommendations. Initiate strategic relationships with regional institutions involved in financial training. Prioritise collaboration in those areas where there is an obvious gap in supply (e.g. for particular technical/management skills): Encourage regional partnerships between training academies, e.g. by way of a multi-site training initiative involving distance learning as well as physical interaction. Develop new/expand existing courses to reach at least 4,000 people by Year 5. Understand regional accreditation systems: Explore with EAC/W African industry associations fitness for purpose of existing accreditation schemes and ways of strengthening them. Explore options for expanding accredited/certified courses, or for strengthening the credibility of these: Track the impact of accreditation/certification on the career progression and remuneration of trainees. Encourage use of e-training methods by “bricks and mortar” institutions. Consider providing financial support to virtual Centres (i.e. not linked to existing institutions). Provide funding to partner Centres to help them develop course material. Broker collaboration between international training establishments (Frankfurt Institute, Boulder etc.) and African entities. Work closely with relevant Kenyan institutions (KSMS, Strathmore, KBA, KIB) to drive regional strategy in this area. Provide funding for scholarships to encourage initial take up of new courses. Work with FSDs to understand their approach to skills gap research. Conceptualise a strategic partnership with MasterCard Foundation that complements their leadership and youth focus. Produce research/evidence as advocacy material to strengthen arguments for why FIs should invest in skills development. Appoint a Head of Education as a full time role. Maximise synergies with other parts of Skills Development pillar (e.g. Executive Coaching initiative). . Resourcing Total commitment: £1.2m Funding mainly for Head of Education (£400k over 5 years), scoping and other research (£300k) and engagement with Centres (£500k).

Pillar 1 - Centres of Excellence
Pillar 1 - Centres of Excellence. Indicative timeline for this sub-pillar. H2 2013/14 2014/15 2015/16 2016/17 2017/18 Scoping research concluded Detailed strategy for CofE refined Recommendations shared with key stakeholders e.g. MCF, Strathmore Due diligence for MicroSave project progressed Head of Education appointed Exploratory discussions with regional Centres Heads of Agreement agreed with at least one Investment in course material development for 1 Centre New training course (Course 1) marketed Scholarships funded1 Supplemental research, following scoping work Strategic partnership agreed with funding partner Course 1 repeated2 2nd new training course (Course 2) marketed Scholarships funded Further targeted research (possibly to track career impact) Courses 1 and 2 repeated 3rd new training course (Course 3) marketed Scholarships funded Courses 1-3 repeated Scholarships funded Impact evaluations 1 Scholarships to be provided on market-leading basis; strict conditions for being repeated 2Short technical training courses could be repeated 2/3 times per year; professional/certified courses could be multi-year in nature

Pillar 1 - Centres of Excellence. Key implementation risks. Likelihood of occurrence Ease of mitigation Risk Detail Working with academic institutions is slow and delays impact Although private business schools may respond to the profit motive, other institutions may be slow and prefer their own way of doing things. Institutional politics within academic institutions is part of this risk. Regional politics may intervene to slow or derail initiatives The vision of regionally relevant training will evaporate if there is no genuine desire for cross-regional collaboration. Students (e.g. in EAC) may prefer to receive training from local champion, even if of inferior quality. Similarly, regional systems of accreditation will require political buy-in from across an economic region. Partner institutions may be ineffective at generating uptake of courses Although motivated academically, partners may not be effective business partners. They may be ineffective at drumming up students, perhaps because of poor marketing or misconceived approaches to pricing. Failure to secure an effective Head of Education Executing on this specialised agenda requires FSDA to identify an outstanding Head of Education, almost certainly from the EAC region High Low Political risks – both regional (e.g. EAC) and internal (to partner institutions) appear to be a significant risk area. Mitigating the political risks requires FSDA to be able to articulate very clearly the rationale for regional training. The business risks (mainly securing adequate throughput of students to justify the investment) are compounded by the availability of donor funding which may undermine (i) initial uptake (students prefer to go for subsidised, inferior training (ii) the long term sustainability of new initiatives (donors keep funding scholarships). The Head of Education role is fairly unique, requiring specialist expertise and well-honed diplomatic skills.

FSD Africa’s activity Pillar 2 – Knowledge and evidence. Implementation risks Likelihood of occurrence Ease of mitigation Risk Detail FSDA achieves limited traction with intended knowledge beneficiaries (including FSDs) Stakeholders, including FSDs, already have to manage a lot of information. FSDA will need to ensure that research is genuinely demand-driven (i.e. has a purpose), different and imaginatively presented and that it focuses on information being used, not just produced. Impact exercise proves more complex and difficult to coordinate than envisaged Complexity of subject matter and challenges in coordinating FSDs may mean that concrete, value-adding outcomes take longer to achieve than envisaged Difficult to secure a good Head of Research This Pillar is a major strategic initiative in its own right. It will require leadership from someone who is comfortable in public and private sector environments and who is practical (i.e. outcomes-oriented), yet intellectually searching. This leader also needs to be comfortable with travel and management. High Low The key risk for FSDA here (besides not being able to find the right people) is that money and effort are wasted on producing information that turns out to be superfluous. This can be mitigated by FSDA ensuring that research is genuinely demand-driven (e.g. FSDs are consulted in selecting topics to be researched) and that strategies are in place to use the data, not just produce it. A major part of the sub-programme will in fact focus precisely on this: it will aim to produce segmentations and other data tools that are specifically designed to encourage data uptake . Around the FSD network, there are already strong opinions on how to develop FinScope in future. There is not necessarily a “one size fits all” answer and FSDs will want to continue using FinScope and other information tools in ways that suit their purposes the best. This is appropriate. Success is about achieving good, self-critical collaboration and a pooling of ideas, and FSDA will not be seeking standardisation at all costs.

Skills development and training Building services markets
Pillar 1 - Skills development and training. Impact - interlinked sub-pillars reinforce impact Poorer people, whether consumers or producers of goods and services, are better able to manage their economic lives because they use appropriate and affordable financial products more extensively as a result of improved access Enhanced financial market characteristics lead to greater choice for consumers: more innovation, greater competition, more diverse range of suppliers of financial services, better market information, knowledge-based services more available, better policies and regulation Skills development and training Building services markets Centres of Excellence Minimum 20 FIs benefit from TA. These FIs reach 3m previously excluded people by Year 3. Measurable improvements in operating efficiency as a result of TA – lower cost ratios, higher RoA, reduced PAR. New champions created; established FIs repurposed. Successful TA interventions (e.g. as evidenced by ROI or improved customer feedback) encourage FIs to invest more in skills development and training – improving sustainability. Donors better able to effectiveness of different routes to market for TA. FSDA has influence on how donors provide support for capacity building. Case studies of innovation encourage “copycat” investment by others. Annual surveys reveal that FIs claim to rely less on subsidy to fund investment in services (i.e. they are prepared to pay for it themselves). Annual surveys reveal that FIs rate the quality of local suppliers of services more than previously. FIs derive direct commercial benefit from use of locally-supplied services in their core business in ways that benefit financial inclusion. Better data on better use of services increases financial inclusion. International technical knowledge shared within local market. FIs more aware of existence of quality, local suppliers. Market-building approach acknowledged by donors as important complement to subsidy, and changes capacity building policy. Strategic relationships developed with at least 3 training institutions. At least 4,000 people trained by Year 5 (5,000 by 2020) on FSDA supported programmes. Successful pan-EAC training programme demonstrates rationale for adopting regional approach. Support for training activities have an appreciable impact on FIs’ ability to access good quality staff. Greater industry awareness of need for coordinated response to skills gap challenge results in new industry initiatives. Greater understanding of linkage between accreditation and career prospects.

FSD Africa’s Pillar 2 – Knowledge and evidence

Pillar 2 – Knowledge and evidence
Key assumptions driving design, delivery and impact Addressing information gaps can have a highly catalytic impact on market development: absent, imperfect or asymmetric information is often the root cause of market failure and can lead to coordination failures – e.g. in policy change processes which, as a result, can be inordinately slow or fail altogether. It can be easy to produce information but much harder to turn it into usable knowledge: by investing in the development of analytical tools and capacity, FSDA aims to make research more accessible and actionable. There is an increasing need for more specialised knowledge : this applies equally to industry sectors, client behaviour or research methods. To address this, FSDA will invest in long term learning programmes with research experts. The fragmented, diverse nature of African financial markets presents a logic for creating a regional information clearing house: By conducting multi-country research, FSDA can highlight regulatory or other discrepancies between countries. This will support efforts to bring about regional harmonisation of financial market and may engender peer pressure between countries and stimulate policy change . As most FSDs are confined to operating in their own markets, the FSD network is not effective at sharing information or lessons learned. FSDA could also share insights with FSDs from outside Africa. FSDs are effective at using information to promote market change so it is logical for FSDA to make it easier for them to play this role. FSD reviews have revealed how their role in building knowledge by creating and facilitating the use of information has been transformational and highly valued. Multi-country research will create cost economies of scale and crowd in co-funding. Major funding partners will often prefer to conduct research on a multi-country basis because they want to achieve impact at scale. A coordinated effort is needed to build FSD capacity around impact evaluation. FSD funders are seeking better tools with which to measure impact and FSDs are approaching the task in a fragmented way.

Pillar 2: Knowledge and evidence
Inputs, key activities, stakeholders and impact Inputs Pillar 2: Knowledge and evidence Pillar 2 results Impact Key activities Participants Near-term Long-term Financial: £5.5m over 5 years – plus matched funding from FIs, FSDs, donor co-investments Human: FSDA staff; consultants and analysts; data (eg MIX) and academics Research: Studies, segmentations Cross-country research projects in thematic areas relevant to FSDs Mobilise multi-country research programmes with international partners Support technical development of FinScope Oversee consultative process on impact evaluation; work with FSDs on impact Develop regional information platform Work with strategic content partners to create and disseminate knowledge FSD country programmes International funding partners Regional training, consulting and research firms Academics Data content and management companies Comm’s and PR companies Cross-country insights available on key thematic topics FSD engagement on FinScope has led to specific enhancements and harmonisation New research tools piloted and results shared Consultation on evaluation has built consensus around measurement approach Portal strategy live and effective Cross-country research has helped regionalisation processes and FSD advocacy efforts FinScope harmonisation has enhanced its reputation Learning programmes with researchers enhance quality of FSD research FSDs better able to evaluate impact FSDA portal seen as vital information source in region Financial market change processes - initiated by FSDs, FIs, policymakers, others – enhanced by greater availability of pertinent, good quality information; sustainable market capacity for creating and analysing data strengthened Number of research projects co-designed with/co-funded by FSDs. Number of multi-country research projects managed on behalf of international funding partners. Common approach to FSD programme impact evaluation established and delivered. Number of FSDs who receive capacity building from FSDA on impact evaluation. FSDA information platform established and enhanced. Website hits. Key indicators

Pillar 2 – Knowledge and evidence. Summarised budget.
£’000 Cross country research Funding for research 800 Data products and programmes FinScope-related 690 Other data products 320 Learning programmes 1,550 2,560 Impact evaluation Consultative process and follow-on 275 Portal Website, communications 433 MIX grant 400 833 Management costs 1,078 Total 5,546 FSDA’s Knowledge and evidence team will help coordinate information and evaluation related activities in other pillars and will derive disseminable “product” from these activities. So, the Pillar 2 budget will effectively be augmented in this way. Learning programmes, as with other major budgetary commitments, would be subject to due diligence and Board approval. MIX grant negotiated between DFID and MIX prior to FSDA becoming operational.

Cross-country research
Pillar 2 – Knowledge and evidence High level programme rationale and partners Rationale Possible examples/partners Cross-country research Cross-country studies to support regional harmonisation. Will also create product for website and build collaboration with FSDs. Will crowd in research funding from others. Leasing, cost of collateralisation Consumer protection FSDs, CGAP Consultants (SBI, OPM, Genesis) Industry associations, EAC FMT, and other FSDs Academics (technical advisory panel) TNS, Research Solutions AgFiMS (agriculture) Centre for Affordable Housing Finance (housing) SBBN (SME finance) Data products and programmes Work with FMT, and other FSDs, on programme to enhance uptake and credibility of FinScope. Trial use of other research tools for FSDs. Learning programmes will support long term research in specialist areas via partners. This will give FSDA exposure to “non-core” sectors and leverage external, specialist resources to generate information products. Impact evaluation Commission consultative process to build FSD consensus on approach to impact evaluation. Develop toolkits and support capacity building efforts with FSDs. Lay down research funding to address difficult, outstanding research questions. Impact evaluation experts CGAP DFID M&E experts FSDs Portal Build regional information platform as a resource for FSDs as well as for non-FSD stakeholders. Comprehensive communications strategy as well as website. MIX Comms, PR

Pillar 2 – Knowledge and evidence. Activities and resourcing
FSDA will… Initiate, and provide funding, for cross-country research, where possible (i) in thematic areas considered priorities by other FSDs (ii) with active FSD participation (design, co-funding). Mobilise and manage multi-country research programmes with international partners, preferably involving other FSDs. Proactively reach out to these partners to better understand their research priorities and explore synergies (Africa research conference). Support FSD network efforts (especially FinMark Trust) to drive technical development of FinScope: Encourage regular peer review of FinScope by international academics through research grants. Encourage use of FinScope by (especially) private sector providers by: Involving marketing professionals and CRM providers in FSD discussions related to FinScope. Working with individual ‘showcase’ FIs on data, e.g. on segmentation, marketing strategy . Provide research funding to test appropriateness of other research methodologies e.g. sectorally-based (usch as AgFiMS) . Work with FSD network to develop new analytical tools (e.g. based on FinScope). Build strategic partnerships (‘learning programmes’) – both technically and thematically-based – with research firms and institutions. Carry out a mapping exercise to determine extent to which African research institutions are engaged in financial inclusion research. Initiate a consultative process on impact evaluation, involving all the FSDs, to understand their needs and current practice in this area, and; encourage a harmonised approach to impact evaluation across the FSD network. Subject to recommendations we will (i) develop tools or systems to enable FSDs to evaluate more easily (ii) build their capacity in other ways. Disseminate impact evaluation learnings to a global donor audience. Establish a regional information platform for financial inclusion, centred on a dynamic website. Work with strategic content partners (e.g. MIX, MicroFinance Gateway) to streamline production and dissemination of online content. Host externally-produced content via FSDA website where it complements the regional financial inclusion goals of the programme (e.g. FEF). Use Twitter routinely to communicate with FSDs and other stakeholders. Resourcing Total commitment: £5.5m FSDA will hire a Head of Research, a part-time M&E specialist, a Comms Manager and two analysts. Relationships with research firms and institutions for strategic knowledge partnerships .

Pillar 2 – Knowledge and evidence. Indicative Timeline
H2 2013/14 2014/15 2015/16 2016/17 2017/18 First 2 research projects completed and disseminated FinScope enhancement meeting of FSDs Engagement with academic community on FinScope (seminar) Impact evaluation consultation underway Static FSDA website enhanced Head of Research appointed Heads of Agreement reached on 1st learning programme Impact evaluation consultation concluded Impact evaluation toolkits prepared Heads of agreement on 2nd learning programme Cross-country research used for regional advocacy Comms manager and analyst(s) appointed Africa research conference Multi-country research project co-created with international funder Website hits build More cross-country research Capacity building on impact evaluation Global dissemination of impact evaluation process FinScope technical advisory panel adds value through 2nd seminar MIX systems to collect data for impact evaluation used by FSDs Research dissemination and advocacy Further enhancement of website More cross-country research and advocacy Good quality, harmonised impact data starts to flow through Disseminate learnings Evaluation of research programme Disseminate learnings

Pillar 2 – Knowledge and evidence. Impact pathways.
Implications for Knowledge and evidence strategy Creates a baseline. Allows for target-setting and monitoring FSDA will initiate baseline surveys in markets which lack FinScope or other relevant datasets, from which access-related strategies can be developed. Creates benchmarks for countries and FIs FSDA will fund cross-country comparisons to engender peer pressure and drive policy action. Accelerates innovation. Makes a business case. Confirms initial ideas FSDA will fund market studies which help FIs make the case for new product launches or market entry strategies . Challenges assumptions and prejudices FSDA will fund segmental analysis to reveal pockets of untapped opportunity. Ex ante regulatory impact assessment (RIA) work will help frame appropriate (e.g. light touch) regulatory stance. Ex post RIA work will test whether regulation has been effective. Encourages investment Case studies of successful innovation aim to stimulate copycat investment. Encourages new, more sophisticated products Better data about clients (analytics) allows FIs to develop products that have a more compelling value proposition in the market. Highlights problems. Avoids mistakes FSDA will fund client-centric research (including mystery shopping) that reveals problems in delivery, encourages product re-design and improves uptake. FSDA will fund research that brings financial market stress or dysfunction to public attention. Demonstrates impact FSDA will ensure all its interventions have robust impact measurement components . Action learning with FIs will provide insights into product adoption .

Pillar 2 – Knowledge and evidence. Implementation risks Likelihood of occurrence Ease of mitigation Risk Detail Stakeholders, including FSDs, already have to manage a lot of information. FSDA will need to ensure that research is genuinely demand-driven (i.e. has a purpose), different and imaginatively presented and that it focuses on information being used, not just produced. FSDA achieves limited traction with intended knowledge beneficiaries (including FSDs) Impact exercise proves more complex and difficult to coordinate than envisaged Complexity of subject matter and challenges in coordinating FSDs may mean that concrete, value-adding outcomes take longer to achieve than envisaged This Pillar is a major strategic initiative in its own right. It will require leadership from someone who is comfortable in public and private sector environments and who is practical (i.e. outcomes-oriented), yet intellectually searching. This leader also needs to be comfortable with travel and management. Difficult to secure a good Head of Research High Low The key risk for FSDA here (besides not being able to find the right people) is that money and effort are wasted on producing information that turns out to be superfluous. This can be mitigated by FSDA ensuring that research is genuinely demand-driven (e.g. FSDs are consulted in selecting topics to be researched) and that strategies are in place to use the data, not just produce it. A major part of the sub-programme will in fact focus precisely on this: it will aim to produce segmentations and other data tools that are specifically designed to encourage data uptake. Around the FSD network, there are already strong opinions on how to develop FinScope in future. There is not necessarily a “one size fits all” answer and FSDs will want to continue using FinScope and other information tools in ways that suit their purposes the best. This is appropriate. Success is about achieving good, self-critical collaboration and a pooling of ideas, and FSDA will not be seeking standardisation at all costs.

FSD Africa’s Pillar 3 – Thematic programmes

Pillar 3 – Thematic programmes
Key assumptions driving design, delivery and impact The idea behind these sub-programmes - in retail payments/G2P, credit markets development and agriculture finance - is that Africa would benefit from regional centres of expertise in these areas that are (i) responsive (ii) locally informed and connected and (iii) specialised . They would play a role akin to a specialised FSD, intervening at macro, micro and meso levels, facilitating market development in the chosen sectors . They would operate regionally but would have particular country priorities as well. These may or may not be FSD countries. Country selection would be influenced by (i) the presence of an FSD (or not) (ii) the extent of under- resourcing (i.e. does the country need the support?) (iii) scope for material impact. These centres, being regionally credible, would be well-placed to match top quality international or regional expertise to the particular needs of local policymakers and regulators and would reject “cookie cutter” approaches. In order to maximise impact, these interventions would be managed by domain experts – ideally from SSA. FSDA believes that it will achieve more impact by creating a platform for talented individuals with experience in the field than by attempting to master all the details itself. FSDA has the resources to initiate these sub-programmes but not to meet their full funding needs. As demand- driven projects, they will need to raise additional funding from elsewhere. Their specialised nature should help them appeal to funders that have a particular interest in that field. The choice of sub-programmes has been determined after consultation with FSDs and so reflects FSDs’ interests and needs. Pillar 3 should produce synergies across the FSD network (e.g. shared research and advocacy) and may open up opportunities for funding collaboration with the FSDs. These programmes will help drive the sustainability of FSDA’s work. Self-standing programmes will develop their own networks, encouraging buy-in from African as well as international stakeholders, and could even outlive FSDA. Initiating these programmes early in FSDA’s programme life will give them time to develop sustainability strategies. Outsourcing model also addresses FSDA’s near term capacity constraints.

Pillar 3: Thematic programmes
Inputs, key activities, stakeholders and impact Inputs Pillar 3: Thematic programmes Pillar 2 results Impact Activities Participants Near-term Long-term Financial: £3.7m over next 5 years Human: FSDA Director, Senior Project Director, in-sourced management teams Research: Scoping research to validate strategies (e.g. country choice, management options) Confirm choice of thematic areas Conduct design work to validate country choice, management strategy, institutional “home”, impact goals Broker co-funding arrangements with other donors Conclude multi-year grant arrangements with new entities Leverage in support from other FSDA pillars Monitor closely and evaluate impact New or existing African institutions (e.g. research entities) FSDs Int’l co-funders Int’l technical partners (e.g. CGAP, AFI) In-country and regional stakeholders New market development programmes established in 3 areas critical for FSD in Africa FSDA governance arrangements prove to be robust and supportive Programmes develop productive relationships with regional stakeholders Co-funding commitments secured Under-resourced countries benefit from sustained, responsive capacity support from programmes Conduit in place for global expertise into region FSDs benefit from easier access to specialist expertise Sustainable African institutions Financial inclusion accelerated through provision of responsive , high quality support; better policy frameworks maximise potential for formal financial inclusion; innovation grants enhance competition and consumer choice Number of new programmes. Amount of co-funding leveraged in alongside FSDA; reduced (or zero) programme dependence on FSDA funding. Appropriate and supportive governance relationships between FSDA and sub-programmes implemented and working smoothly. Sub-programme impacts – (i) instances of policy/regulatory change (ii) examples of successful innovation as a result of sub-programme support etc. FSDs say they benefit from existence of sub-programmes. Key indicators

Pillar 3 – Thematic programmes. Summarised budget.
£’000 Retail payments, interoperability and G2P 1,000 Credit markets development 1,337 Agriculture finance 3,337 Management costs 401 Total 3,738 Thematic programmes will also benefit from FSDA’s investment in other pillars. Funding amounts are intended to be catalytic and not to provide “cradle to grave” support. Sub- programmes, with FSDA support, will raise additional funding from elsewhere (subject to demand). FSDA funds could therefore be used for overheads (typically harder to source), leaving other donors free to fund programmes directly. It is anticipated that significant additional funding will be available for the payments and agriculture finance programmes, given the level of donor interest in those fields.

Pillar 3 – Thematic programmes.
Programme #1 - Retail payment systems and G2P Key issues and trends Growth in African economies is increasing the demand for greater diversity of non-cash retail payment instruments. E-payments are a powerful driver for financial inclusion but they also make financial markets more efficient (N.B. growth effects) and transparent – hence growing calls from government for cashless, or “cash lite”, economies. Continuing uncertainty among regulators about how to: manage the changing nature of the relationship between the banking and telecoms industries. support development of national payments systems to accommodate innovation and increased regionalisation. Increased interest (led partly by donors) in the use of national payments systems as a conduit for welfare payments (cash transfers, or G2P) and the part this can play in boosting long term financial inclusion. Technical complexity and lack of capacity among regulators has resulted in stasis or regulatory conservatism. Market gaps Lack of common understanding among regulators and the wider sector about what the term interoperability means and how to apply it in practice. Lack of coordination between different regulatory authorities in-country and across regional borders. Scarce technical resources rarely available to assist regulators in a timely and sustained way. Not easy for regulators to procure technical support directly from consultants due to government rules. Rationale for FSDA intervention Facilitatory role: market catalysts are effective at lubricating complex processes. Partners: CGAP, AFI, Better than Cash, UNCDF, BFA. Value add: good experience to share from across FSD network (e.g. Kenya - on G2P, NPS development) . FSDA fit: Strong links into Pillars 1 and 2. Regional: Lessons learnt in Kenya and Nigeria can benefit other jurisdictions; call from recent EAC FSAP for pilots in cross-border retail payments. Indicative impacts Interoperability will result in lower costs for small-value high-volume transactions resulting in increased usage of formal retail payment channels by low-income users leading to greater financial inclusion. Will enable definitions and good practices to be developed Will enable peer learning. A central resourcing platform will overcome fragmentation and harness scarce resources.

Pillar 3 – Thematic programmes.
Programme #2 - Credit markets development Payroll lending has made access to credit for salaried employees dangerously easy in some markets, leading to a growing problem of abusive lending and over-indebtedness. Yet access to credit for the majority (i.e. non-salaried) remains extremely constrained, not least in developmentally important areas such as housing and small business finance. While the importance of savings and payments in microfinance is now well-understood, there is a need for innovation in credit in order to achieve balanced and broad financial inclusion and drive growth. Credit market reform tends to be promulgated in a fragmentary way – e.g. credit bureaux under SME development, consumer protection under a separate responsible finance pillar – when in fact the different elements interrelate. FSDA would like to bring these elements together by facilitating the establishment of a single African centre of expertise around credit markets whose mandate would be to encourage the role of responsible credit in African economies. Credit market regulators , financial institutions and donors, seeking advice and information, would be its primary stakeholders. A major activity for the centre would be to develop information products, allowing for trend data and cross-country comparison. There is currently no single African “observatory” monitoring the evolution of credit markets in Africa and no single Africa resource dedicated to combating credit market dysfunction. The centre would support identification of obstacles to credit market development and inform regulatory reform (e.g. interest rate, consumer protection, credit information) as well as meso-type interventions (e.g. credit guarantee structures). At the micro level, the centre would catalyse pioneering approaches to credit scoring and innovative credit products . Indicative impacts Regional stakeholders able to access resources of an African centre of excellence for credit markets. Highly specialised global credit market expertise drawn into Africa through this conduit. Better quality regulation. More sustained growth-focused innovation through locally-relevant information products and other resources. African experience communicated globally . FSDA and the Bank of Zambia (BOZ) FSDA is supporting BOZ as it deals with the market implications of recently-imposed interest rate caps. This involves near term technical advice; support for a formal regulatory impact assessment; a “fitness for purpose” assessment of regulatory and institutional architecture of Zambia’s credit markets for long term development needs. Learnings will inform the approach to be adopted for this thematic sub-programme.

Pillar 3 – Thematic programmes. Programme #3 - Agriculture finance
Definition Rationale for FSDA intervention Beyond rural finance, agriculture finance supports activities such as: input supply, production, distribution, wholesale, processing and marketing.1 Scale: Growth and poverty reduction impact, pan-SSA. Value-add: M4P finance niche, innovative financing, credibility with FIs. Agricultural value chain finance addresses the: ‘inter-linked processes from farmer to consumer.’2 Partners: Multiple, also CGAP well-positioned to support. FSDA /FSDs can be a bridge between global initiatives and on-the ground intervention. Key stakeholders include: Smallholder farmers, food processors and agri-businesses. FSD support: Strong demand from FSD network – FSDs have some prior experience, but patchy. Key issues, trends and gaps Regional: Pan-SSA value chains. Agriculture significantly underfinanced in SSA – just 10% of commercial bank portfolios.3 FSDA fit: Linkages with all four FSDA activity pillars. Primary lever for growth as well as poverty reduction: agricultural growth is generally pro-poor but especially if generated by increased smallholder productivity in staple crop production.4 Risks associated with FSDA intervention Feasibility: Breadth of issues, lack of in-house expertise. Increased global interest in innovative, sustainable models of agricultural investment.5 Donor engagement Large number of donors (USAID ˜ $2bn; AGRA ˜ $500m; Gates Foundation ˜ $300m; World Bank; IFAD).6 But varied focus area (macro, meso, micro); thematic priorities (finance, rural poverty, technology, value-chains etc.) and a lack of overall co-ordination. Indicative impacts Foster a ‘new dialogue’ about agriculture finance amongst a well-coordinated SSA ‘ecosystem’ of farmers, FIs, investors, donors, and policymakers . Foster development of new suite of financial products or services for underserved segments across SSA. Close the information gap between agriculture and finance through the systematic production of knowledge and evidence. Create/embed greater agricultural expertise within Fis. 1 FAO (2013); 2 FAO (2013); 3 Dalberg (2013); 3Dalberg (2013); 4World Bank Africa Pulse Spring 13, Diao et al. (2012); 5GIIN Terragua (2013); 6Dalberg (2013)

Diligence and partner selection
Pillar 3 – Thematic programmes. Programme implementation – four sequential stages 1 2 3 4 Design Diligence and partner selection Delivery Impact evaluation Identify key programme elements and impact pathways, understanding where it fits in to FSDA’s Theory of Change Refine areas of focus Review implications of geographic focus (urban/rural, country-specific, etc.) Adjust programmes based on results of impact evaluations Develop long list of broad set of potential partners Review partners against impact criteria and Select those partners (co-funders, FIs, service providers, etc.) best suited to impact / delivery Identify requirements for execution, e.g., monetary, physical and human resources, etc. and execute Revise programme components as required to achieve greater impact, reach broader audience, etc. Evaluate impact of programme (and individual components) based on original theory of change and programme goals Identify key questions for re-design or to discuss end of programme

Pillar 3 – Thematic programmes. Activities and resourcing
FSDA will… Identify core themes around which multi-country M4P sub-programmes can be built. Initial focus will be on: retail payments, interoperability and G2P; credit markets development; agricultural finance. Validate the choice of each thematic sub-programme, together with any ex ante design hypotheses, through significant project preparation facilities (PPFs) to enable research, pilots, in-country stakeholder engagement, programming design and formal due diligence. Use the PPF to determine priority countries (up to 4 per sub-programme) for interventions. Country choices will be strongly influenced by existing or planned FSD activity in the thematic area. Overlaps will be handled in accordance with FSD Partnership Principles. Invest along M4P principles, thus ensuring balance of activities across all 3 market levels (macro, meso and micro). FSDA may be more activist in some thematic programmes than in others. Look for opportunities to broker co-funding arrangements with other donors and/or strategic relationships with technical partners. Only invest in thematic sub-programmes where there is a credible management story or institutional home. Investigate feasibility of bringing other sub-programmes on stream during the programme lifetime. Budget will be allocated specifically for these feasibility studies. Bring capacity to these sub-programmes from the other FSDA pillars (e.g. change management expertise from Pillar 1, information or research know-how from Pillar 3). Design these sub-programmes so as to maximise their chances of sustainability and allow FSDA to exit in due course. Be actively involved in the governance arrangements for these sub-programmes so as to drive impact. Appoint a Senior Project Coordinator to oversee these strategic sub-programmes. Resourcing FSDA will… Commit a total of £3.7million to thematic programmes. FSDA’s Senior Project Coordinator will play an active oversight role (i.e. admin/finance) but will also need to familiarise him/herself with the programme content so as to minimise the risk of mission creep. FSDA will use external consultants where necessary but the basic idea is that the outsourcing model should reduce FSDA’s transaction costs.

Pillar 3 – Thematic programmes. Indicative timeline
2014/15 2015/16 2016/17 2017/18 Design work on 1 sub-programme completed and underway on 1 other Co-funding discussions opened with international funding partners FSDA PSC approval for 1 sub-programme 2 sub-programmes underway Funding commitments from 3rd parties secured for at least 1 programme Design work on 3rd programme concluded Monitoring and evaluation 3rd sub-programme now operational Funding commitments from 3rd parties secured for another 2 programme(s) Monitoring and evaluation Monitoring and evaluation FSDA explores spin-off strategies for these programmes Monitoring and evaluation At least 1 programme spun off (FSDA retains non-funding link)

Pillar 3 – Thematic programmes. Key implementation risks. Likelihood of occurrence Ease of mitigation Risk Detail Setting up new institutions is risky (and potentially inefficient) mainly because of the premium on scarce management but also because of funding considerations , political economy factors and the need to spend time and resources creating an institutional strategy and identity Institutionalisation risks slow down implementation and impact Another institutional layer increases complexity of intra-FSD relations Although the new institutions will not be FSD-branded, FSDs will want to ascertain how the new institution relates to them in their markets, who “owns” regulator relationships etc. Arms’-length management arrangements inevitably increase the risk of financial misfeasance but also reputational damage for FSDA and its promoters. Further, there is a risk that intended impacts get diluted through mission creep. Governance and control issues FSDA funding is too small to make much of a difference If programmes cannot raise co-funding, the limited budget provided by FSDA may mean that their contribution will be ephemeral. These are quite big topics in which other funders have far greater resources at their disposal . High Low The important judgement here is whether the benefit that comes from setting up a new institution – a platform for talented management, specialisation, sustainability etc. – outweigh the risks. Limited evidence from FinMark Trust, whose success in setting up both Cenfri and the Centre for Affordable Housing Finance as autonomously managed entities (in Cenfri’s case, wholly financially independent), suggests it is a prize worth going for. Scoping work may indicate that the institutional strategy is appropriate in one or two sub-programmes but not in a third in which case FSDA will modify its approach and bring the initiative in-house. Ultimately the feasibility of the institutional strategy will be driven by the availability of appropriate management and FSDA may have to warehouse the initiatives in-house until it finds its management team.

FSD Africa’s Pillar 2 – Knowledge and evidence

Pillar 4 – Regional platform. Overview.
Everything that FSDA does will have a regional dimension. However, there are certain activities which do not fit easily into the other three Pillars, despite obvious complementarities. Regionalisation Supporting efforts towards harmonisation of regional financial markets Cross-country initiatives Catalysing financial inclusion in non-FSD countries Grants to donor partners Regional platform Facilitation FSD network activities Reference groups New initiatives Feasibility work for FSDA activities post SIMBA (“SIMBA Growth”)

Pillar 4: Regional platform
Inputs, key activities, stakeholders and impact Inputs Pillar 4: Regional platform Pillar 4 results Impact Activities Participants Near-term Long-term Financial: £3.4m over 5 years Human: FSDA Director, admin staff and consultants Feasibility for, and evaluation of, cross-border pilots; new country diagnostics Research (e.g. cross-country studies) and advocacy (e.g. with EAC) to accelerate regional harmonisation Catalyse change processes in under-resourced non-FSD countries to promote inclusion Grants to funding partners FSD network meetings Feasibility studies to explore FSDA post SIMBA strategy Regional bodies FMT (regional working) FSD network Experts, practitioners programs Policymakers in non-FSD countries Donor partners Research projects concluded; generate uptake/reaction in EAC/other regional fora Credible information base built in non-FSD countries M4P approach adopted in Francophone country Regular FSD network meetings Approved Business Case for “SIMBA Growth” Regional entities regard FSDA as having played instrumental role in harmonisation processes Institutional capacity built in non-FSD countries FSDs see the network as relevant, responsive and value-additional to their work Financial market characteristics enhanced across a broad, regional front by providing seed funding and supporting facilitation to to catalyse change processes and knowledge transfer FSDA operation: number of staff hired; additional non-DFID funding leveraged in to FSDA. New countries: number of new strategic financial inclusion programmes initiated in non-FSD countries. Regionalisation: number of regional/multi-country macro or meso-level financial inclusion initiatives supported by FSDA. FSD network: number of meetings; number of research- and non-research based collaborations between FSDA and FSDs. Reference groups: number of expert-reference group meetings held on specific financial inclusion themes. Key indicators

Pillar 4 – Regional platform. Summarised budget.
£’000 Regionalisation Research, pilots, advocacy 625 Cross-border initiatives Financial inclusion initiatives in non-FSD countries 665 Support to donor partners 600 1,265 Facilitation FSD network activities 350 Reference groups 540 890 New activities Feasibility studies for post SIMBA work 825 Total 3,605 The regionalisation budget is effectively augmented by the cross-country research budget in Pillar 2 (£800,000) which is intended to generate insights that will help speed regional harmonisation. Cross-border initiatives: New country initiatives: budget covers scoping visits, diagnostic work (non-FinScope) and stakeholder dialogue. Donor partners: grants for activities that complement FSDA’s inclusion goals. Reference groups: funding for reference group work, seminars etc. as part of FSDA’s knowledge-building agenda.

Pillar 4 – Regional platform High level programme rationale
Rationale and approach to be adopted Regionalisation Although regional institutions are weak, they may, eventually, play a more effective coordinating role around inclusion. In the near term, failure to engage with them may obstruct country-based, or private sector-led efforts to build inclusion. FSDA will look for ways to engage fruitfully with EAC but will avoid intensive involvement; maintaining a neutral and independent stance may be a more effective advocacy tactic. FSDA will look to engage with FMT in this area, given its prior experience with SADC. Some non-FSD countries are way behind others in Africa in getting inclusion processes underway. These include post-conflict states: intervening in these greenfield environments could result in surprisingly promising impact. FSDA will look to engage in at least one Francophone country, in partnership with CGAP/AFD. Working through other partners (e.g. GIZ) on complementary initiatives will accelerate impact, increase FSDA’s geographic reach and give it exposure to thematic areas that may not be core to the current strategy. It could also produce valuable insights that could be brought back into the FSD network. Cross-country initiatives It is part of FSDA’s raison d’être to support the FSD network so that it functions more effectively as a collective asset (see subsequent slides for further detail). FSDA will use its African and international networks in Africa to convene reference group meetings (or similar fora) to exchange insights and problem-solve in areas of relevance to the inclusion, or broader financial sector development, agenda. FSDA believes this type of activity can play an important role in creating knowledge and building thought leadership. Facilitation New activities (post SIMBA) FSDA believes it and other FSDs have a role to play in supporting growth through initiatives more associated with mainstream financial sector development than with traditional financial inclusion work. Exploring these possibilities requires appropriate, but explicit, investment in feasibility studies and pilots.

Adequate resources and capacity Enhanced comm-unication
Pillar 4 – Regional platform. Supporting the FSD network in different ways. Unifying purpose Unifying purpose. FSDs are focused on different issues, with some overlap. FSDA can identify and expand areas of overlap. Effective management. FSDA can ‘manage’ how the network operates, identifying and taking advantage of synergies. Enhanced communication. FSDA can take lead in convening regular network meetings, and establish open lines of communication via platform. Adaptability. FSDA’s regional and network-wide perspective can support network to be flexible to changing market conditions. Managed growth. FSDA can advise DFID on viability of establishing new FSDs, being active in supporting new offices in becoming operational. Adequate resources and capacity. FSDA can act as a convener of network resources, through which FSDs may pool resources or receive support from other parts of network. Adequate resources and capacity Effective management FSD Network Managed growth Enhanced comm-unication Adaptability

Pillar 4 – Regional platform
Pillar 4 – Regional platform. FSDA will play different roles in its engagement with the network. Support Partnership Agency External stakeholders External stakeholders External stakeholders FSDA FSDA FSDA External stakeholders External stakeholders Country FSD Country FSD Country FSD Support country FSDs by providing resources and expertise, acting as repository of information, facilitating knowledge-sharing across network, assuring consistency in impact evaluation. Partner with country FSDs on projects, providing co-funding and technical support, bringing regional learnings, expanding investments across borders. Act as agent for network,1 engaging with regional and global stakeholders, pushing forward policy agenda, developing independent regional programmes. Although the network is flat-structured, FSDA can play a leading role in making it function more like a network by committing time and resources to network activities 1 This should not be misunderstood as FSDA seeking to speak on behalf of individual FSDs or to disintermediate them from their bilateral relationships with external stakeholders. In uplifting the interest of the network with these stakeholders, FSDA should create more opportunities for FSDs to engage externally on a bilateral basis

Pillar 4 – Regional platform. Partnership Principles of FSD network.
FSDA will aspire to work within a set of partnership principles… …even as it takes on a number of roles with the FSDs Collaboration is more effective than working alone: FSDA and FSDs should actively support the network. FSDA should respect the market position of in-country FSDs: It should not independently engage in business development activities in an FSD country. It should not fund activities that would not have the support of the in-country FSD. It should find ways to involve the local FSD in activities funded by FSDA (e.g. build FSD’s capacity). FSDA is not a service provider to FSDs: It has programme objectives of its own which FSDs should support. Similarly, FSDs are not service providers to FSDA. With individual FSDs: Help FSDs do things they would like to do (and which they believe need to be done). In countries with no FSD: Initiate change processes through a seed-funding role, leveraging FSD network experience. With external partners: Play a platform role by facilitating multi-country and multi-partner interventions and reducing transaction costs.

Programme ‘champions’
Pillar 4 – Regional platform. Possible tools for engaging with/managing the network. Recommendations Rationale / Examples Governance Seat on FSDA Board for FSD representative (subject to approval of Chair/members). Symbolic of inclusion and transparency Good for communication Given time cost, network meetings should be fewer and higher quality Retreat can be net-benefit as enables mid-level staff to interact, improving information flows Network meetings for senior staff three times a year, location to be rotated across FSD countries. Smaller themed meetings “on demand” (probably 2/3 times a year). Annual retreat for broader selection of FSD staff. Meetings Communications FSDA will assess options for enterprise social network platform and/or Twitter to facilitate more fluid communications between all staff. Communications staff will be responsible for compiling news-mail updating network on activities across all offices. News-mails are effective way of keeping network informed and feeling connected Programme ‘champions’ FSDA will look for informal champions within each country FSD to actively seek collaboration opportunities, not wait for FSDA to propose. Country directors are busy and may not always have best sense of programme collaboration opportunities

Pillar 4 – Regional platform. Activities and resourcing
Pursue a cluster of projects that are explicitly rationalised by reference to the harmonisation of East African Community (EAC) financial markets. These are likely to involve (i) cross-border aspects (e.g. trade financing or payments) (ii) regulatory harmonisation (e.g. consumer protection, leasing). Engage selectively with EAC (and EAC partners, such as the World Bank) to offer strategic support for financial inclusion. Through direct interventions, catalyse strategic financial inclusion initiatives in at least 5 non-FSD countries by Year 5, of which 2 will be in post-conflict environments. Conceptualise a strategic partnership for supporting market-building financial inclusion work in Francophone Africa; this is likely to involve explicit support from both CGAP and AFD. FSDA would be interested to support FSD-style start-ups in Francophone C/W Africa. Give grants to other donors/partners looking to promote financial inclusion, where they have particular expertise or capacity. Manage a programme of network activities on behalf of FSD network, to include at least 3 network meetings p.a. plus at least 2 other thematically focussed meetings p.a. Meetings will be high quality, involving external thought leaders and facilitators and will balance ‘information push’ and ‘information pull’. Travel to meet FSDs on a regular basis (outside FSD meetings) to discuss joint projects or upcoming opportunities. Appoint a staff member to act as a ‘point person’ within FSDA for FSDs so as to facilitate interaction and relationship-building. Provide ad hoc strategic support to FSDs, if requested – for example, around programming or governance. Create a comprehensive contacts database (in addition to the consultants database referred to above) for the benefit of FSDs and other stakeholders. Provide core funding, as well as project co-funding, to FSDs where it is administratively appropriate to do so. Develop a series of reference group meetings with appropriate experts to problem-solve and build thought leadership. Invest in feasibility studies and pilots to validate a strategic approach for a “SIMBA Growth” programme (post SIMBA activities). Resourcing FSDA will… Commit a total of £3.4million to the regional platform role. FSDA’s Director (supported by other staff and in-sourced consultants) will lead on content (e.g. of FSD or reference group meetings) with logistical arrangements handled by FSDA administrative staff.

Pillar 4 – Regional platform. Indicative timeline
H2 2013/14 2014/15 2015/16 2016/17 2017/18 Scoping work for regionalisation strategy completed Initial engagement with EAC Grant to at least one donor partner Scoping mission to at least one non-FSD country At least 5 network meetings held At least 1 reference group meeting held Due diligence on at least one new initiative concluded Research projects create traction with EAC Diagnostic work undertaken in one non-FSD country Scoping mission to one other non-FSD country Basis of Francophone partnership agreed Communications platform between FSDs and FSDA functions well FSD meetings have continued to identify common areas of interest FSDA pilots a new initiative EAC collaboration as resulted in regional guidelines or regional policy statement Diagnostic work in 2 more countries (one Francophone) plus related facilitative work FSD/reference group meetings continue Strategy for “SIMBA Growth” finalised’ Business Case approved Deepening relationship with EAC documented FSDA has now catalysed initiatives in 5 non-FSD countries FSD network conference (for external stakeholders) New initiatives trialled by SIMBA Growth Monitoring and evaluation of all regionalisation efforts New initiatives in non-FSD countries are by now semi-sustainable At least 1 programme spun off (FSDA retains non-funding link) New initiatives trialled by SIMBA Growth

Pillar 4 – Regional platform. Key implementation risks. Likelihood of occurrence Ease of mitigation Risk Detail Limited political support for regional integration nullifies harmonisation efforts Regional institutions, being weak, do not have the credibility to push forward integration processes with any vigour. External advocacy, however pertinent, may be ineffective. Too difficult to stimulate financial inclusion in non-FSD countries by remote control Without good partners on the ground, FSDA will find it difficult to sustain its newly-catalysed financial inclusion initiatives from a distance, however promising the initial uptake. A network is only a network if its members want it to exist and re prepared to invest in it. FSD Directors may be too busy on other things, or genuinely short of capacity, to give the network enough attention. Lack of buy-in to network by FSDs Too many regional opportunities; too little capacity to follow through FSDA risks being “busy fools” if it tries to take advantage of too many of the opportunities that undeniably exist without being able to sustain high quality delivery. High Low There is the potential for FSDA to stretch itself very thinly across a wide geographic area (SSA) and in multiple opportunities. Budgetary constraints will help to ensure that this does not happen but, in any event, FSDA will need to pick its partners carefully , leveraging FSDs where it makes sense to do so. FSDA’s early engagement with FSDs has indicated strong support from them for the idea of the network but limited effective engagement with it. This is undoubtedly a product of FSDs (i) being busily engaged delivering their own programme goals and (ii) not fully understanding FSDA’s objectives or value proposition. Settling FSDA’s strategy will partially address this but the distractions of programme management will obviously remain. FSDA will try to mitigate this risk through excellent “coverage” (ie relationship management), by mobilising very high quality meetings that make it worthwhile for them to attend and by consulting with them to identify opportunities for network collaboration that really do add value to them.

FSDA – Communications strategy (1/2)
Communications vision To develop and maintain clear, trusted and impartial communication platforms and products to demonstrate FSDA’s role, disseminate information and evidence, promote current and future stakeholder dialogue, and facilitate partnership and network-building. Branding FSDA’s will adopt a ‘low-ego’ approach to its branding. Its brand values include: openness, innovation, regional, credibility and responsiveness. As far as possible, this will be reflected in its choice of logo, document templates, and communications platforms. Primary communications platforms FSDA website, Twitter and LinkedIn. Other communications products In line with FSDA’s Pillar 2 objectives, FSDA will develop novel approaches to the generation, collection and dissemination of topical thematic content. Products could include: newsflashes, thematic bite-sized serials, and industry insights. Sequencing and development FSDA’s communications platforms will developed in two broad phases . Phase 1 involves the relatively rapid launch of communications platforms to establish FSDA’s presence (by the end of August 2013). It will not overstretch FSDA’s capacity, but provide clean, predominantly static information sources. Phase 2 will involve enriching the platforms established in phase 1 with more information and a greater level of interactivity as required and as capacity allows. Dissemination FSDA recognises a widespread ennui towards traditional ‘newsflashes’ and ‘publication repositories’ and will seek to find new and dynamic ways to provide information and evidence that is digestible, interesting and relevant. FSDA will use its own contacts database but also leverage the relationships of key strategic partners such as: a) the FSD network, and b) CGAP to ensure that information is shared carefully, is targeted and gains traction.

FSDA – Communications strategy (2/2)
Brand/communications management There is provision in the FSDA budget for a full-time communications manager, who will report to the Head of Research/Director, as well as for external PR/Communications support. This provision will help to develop and deliver a creative and effective communications strategy that helps to implement FSDA’s strategic priorities, with a particular focus on its Pillar 2 objectives. FSDA website overview The website will be a critical communications platform for FSDA. It aims to provide a virtual presence for FSDA as well as a clear, trusted and impartial source of knowledge and information about FSDA, financial inclusion, and regional financial services markets. It will also act as a gateway to FSDA services and strengthen the sub-Saharan African financial inclusion ‘ecosystem’ by acting as a ‘bridging point’ between FSDA, FSDs and other financial inclusion stakeholders.

FSDA – Impact FSDA’s Theory of Change is premised on the fact that enhanced market characteristics will improve access to financial services for the poor, resulting in greater usage of services and benefits to livelihoods as a result of increased incomes and reduced vulnerability. Without capacity, however, these markets will not be sustainable. So, FSDA’s primary focus is on building capacity – strengthening skills and building knowledge so that market actors are better equipped to play their roles, and are more motivated to take advantage of opportunities. The Theory of Change diagrams in this section illustrate the pathways through which investment in skills and information produce impact. FSDA’s 4 proposed pillars inter-relate – they complement each other. Viewing (say) the Skills Development Theory of Change in isolation from Knowledge and Evidence is not really reflective of how FSDA sees the holistic nature of this programme. FSDA’s regional nature complicates the impact evaluation challenge which is already considerable country-based FSDs in view of the unpredictable way in which markets develop. FSDA will be required to test impact in at least 4 different theatres – at a SSA-level, at a regional level (e.g. EAC), in FSD countries and in non-FSD countries . FSDA is committed to putting in place a comprehensive system of impact monitoring and evaluation that addresses this challenge . Enhanced market characteristics A clear and appropriate policy and regulatory framework. Effective competition between suppliers. Diversity of sustainable suppliers. Adequate credible information available to market players. Innovation in products and services. Appropriate knowledge-based services available to market players.

Impact. SIMBA logframe and other targets
The draft SIMBA logframe is copied at Annex 3. As FSDA’s only source of funding currently is SIMBA, this logframe will be the primary, formal impact measurement tool. This sets out the indicators and where they will come from. If, as expected, additional programme funding is secured for FSDA, a new logframe will need to be developed to incorporate the new outcome goals. As indicated already in Section 1, FSDA’s platform role as a regional programme and the scale of funding that it will have give it the opportunity to create impacts that go broader than those laid out in the SIMBA logframe. These include: Changed mindsets – for example: Private sector: greater appreciation of the value of investing in skills. Donors: changed attitudes towards subsidising “capacity building.” Crystallising imaginative new partnerships and encouraging much greater donor coordination in FSD. Financial inclusion programmes being able to play a meaningful and credible role in a more explicitly growth-focused agenda (e.g. using a range of different financing instruments). Acceptance by a range of pan-African stakeholders of FSDA’s catalytic role in supporting African growth. FSDA has agreed to coordinate a consultative process on impact evaluation that aims to work with FSDs to identify minimum standards and preferred evaluation tools for FSD-type programmes. This exercise will also be used to refine FSDA’s own impact evaluation approach, recognising that it is somewhat different to other FSDs, and will design an implement a formal system for the regular capture of data for impact evaluation.

Impact. Illustrative projections of outreach
FSDA’s headline impact indicator is 3m more people having access to formal financial services by Year 5. The forecasts have been prepared on the basis that all of the 3m could come from change management activities in Pillar 1. These assumptions behind this were set out earlier in this document and should be considered to be reasonably aggressive The chart illustrates the (possible) relative, incremental contributions from other FSDA activities. The largest contributors are anticipated to be the payments/G2P programme and catalytic initiatives in new, non-FSD countries. While the chart shows Knowledge and Evidence contributing nothing to the total, in reality the impact of this sub-pillar on the ability of all other programmes components to deliver impact is immense. No account is taken of the fact that FSDA activities could result in FSDs achieve better outreach results in their markets.

Impact. Theory of Change – Skills development and training
Market building in executive coaching Study tours Peer-to-peer learning Enhanced leadership capacity Strategy consulting FIs better able to set strategies that benefit underserved markets Better strategic planning helps FIs define long-term HR needs and training gaps Strategic HR consulting Professional training Management training Executive coaching Entry level training Market building in e-training Curriculum development Scholarships Better quality supply of training available to FIs FI staff have more capacity to develop services and enact strategies that benefit underserved Knowledge inputs Support for development of new products , channels etc. Financial services more accessible to poor Markets more competitive, innovative etc. Usage of a range of financial services benefits livelihoods Market building in analytics Outcomes FSDA inputs

Impact. Theory of Change – Knowledge and evidence
FSDs interventions have more impact Usage of a range of financial services benefits livelihoods Feedback Enhanced momentum for regionalisation Better policy and regulation Markets more competitive, innovative etc. Capacity building for FSDs in M&E Enhanced M&E systems across FSD network Regional policy advocacy National policy advocacy Strategy consulting Market building in analytics National regulators aware of sector challenges, opportunities Regional bodies more aware of intra-regional differences FIs more aware of regional risks, opportunities Investors, new players crowded in FSDs, global partners benefit from regional insights Cross-country research Multi-year learning programmes Research, innovation showcased FinScope enhancement: support for academics, analysts etc Impact evaluation consultative process Portal development Outcomes FSDA inputs Facilitation (FSD network activities, reference groups) FSDA inputs

Impact. Theory of Change – Thematic programmes
Outcomes FSDA inputs Financial inclusion of up to 1 million more poor people across Sub-Saharan Africa by 2018 FSDA inputs Impact evaluation Enhanced market characteristics Increased market capacity Skills Development and Training Cross-border initiatives Regional Facilitation New information provided to stimulate supply, challenge outdated practices and drive innovation New suite of products, services and approaches established Rejuvenated and focused regional ‘ecosystem’ of stakeholders motivated to deliver more effectively New, regional cadre of skilled financial inclusion policy-makers and practitioners New, specialist institution with a regional mandate Multi-year learning programmes Retail payments, interoperability and G2P sub-programme Agriculture finance sub-programme Credit markets development sub-programme Portal development Cross-country research FSDA future sustainability enhanced through increased expertise, experience and credibility

Impact. Theory of Change – Regional platform
Outcomes FSDA inputs Financial inclusion of up to 1 million more poor people across Sub-Saharan Africa by 2018 FSDA inputs Impact evaluation Enhanced market characteristics Increased market capacity M4P approach to financial inclusion adopted across SSA and new, innovative interventions to link financial sector development to pro-poor growth supported Sharing of best practice and economies of scale achieved by and between financial inclusion stakeholders Greater co-ordinated and effective action by and between donors, the FSD-network, policy-makers and the private sector on financial inclusion New interventions that go beyond financial inclusion to address financial sector development New interventions in 2+ (FSD and non-FSD) countries at once. Greater harmonisation across regional financial markets in SSA A better enabled FSD network and better co-ordinated group of financial inclusion stakeholders across SSA New Regional Initiatives Cross-country Initiatives Regionalisation Regional Facilitation Portal development Thematic sub-programmes Change management FSDA future sustainability enhanced through increased expertise, experience and credibility Cross-country research

FSDA – a company limited by guarantee
FSDA’s legal form will be a company limited by guarantee (CLG). In order to allow FSDA’s funders to provide oversight and strategic guidance, but without fiduciary consequences, the Board of FSDA will work with a Steering Committee of donor representatives who have a range of consultation and veto rights. While decision-making is centralised on the Board, funders have ultimate control through their control of the “members” (or shareholders) of the CLG. Why a CLG, not a trust? Non-profit status requires FSDA to be either a CLG or a trust. Either is feasible but the CLG is marginally preferable. CLG projects a stronger private sector character than a trust. It is, after all, a company. CLG structure lends itself well to the balance of control needed between the Steering Committee and the Board. Easier to define/explain the role of the professional service provider than a trustee (even though the roles may be performed by the same kind of firm). CLGs can have subsidiaries (including in other jurisdictions) whereas trusts cannot. This may be helpful as an option when considering FSDA’s regional role. FSDA Board FSDA Steering Committee Members Professional Services Provider Appoints Member of Provides services to Oversees

Steering Committee/members Professional services provider
FSDA – three elements to governance of FSDA’s CLG A CLG requires members and directors. FSDA’s governance structure also has a Steering Committee, where donor representatives exert influence and oversight, and a professional services provider (PSP). Donors will control the appointment of the members who in turn control the appointment of directors. The involvement of the PSP strengthens FSDA’s capacity to manage its financial and administrative affairs. Steering Committee/members Board of Directors Professional services provider Donors will control FSDA by appointing members and, if needed, by requiring members to remove and replace directors. SC has the right to veto: strategy documents. an annual budget. appointment of directors. appointment of PSP. changes to investment. procedures, including authority limits or procurement processes. SC also has right to be consulted on operational developments and to monthly and quarterly management accounts, Board minutes and investment papers. SC members can sit on Board sub- committees if they wish Meets twice a year. Directors have fiduciary responsibility for the affairs of the CLG. Operational decision-making centralised on the Board, including all investment decisions (typically, no referral onto Steering Committee). Sets strategy and approves annual budgets (subject to SC veto). Provides support to Director in execution of strategy; reviews performance and pay. Manages/oversees key processes e.g. procurement, appointment of new directors. Ensures smooth communication with Steering Committee. Meets four times a year but also works through sub-committees which may meet more frequently. A Big Four accounting firm. Plays an important role in the set-up of FSDA including: putting in place a comprehensive policies and procures manual. reviewing and agreeing authority limits for procurement and investments. ensuring that systems and controls for authorising payments are in place. Ongoing role includes acting as part time finance manager (e.g. preparation of annual budget and management accounts, maintaining cash flow forecast), attending Board meetings, acting as co-signatory etc. Responsible for ensuring systems work smoothly; will be independent “eyes and ears” for directors on governance .

FSDA Board committees FSDA Board Investment Committee Impact Committee
It is envisaged the Board would appoint a number of committees to ensure Board meetings, when they happen, are efficient. This is essential for allowing FSDA to be able to progress investments and other initiatives quickly. Steering Committee members could decide to sit on these committees and so would get detailed operational insights. The FSDA Board would be represented on these committees but so too might independent technical experts who are not directors. The Investment Committee should comprise technical experts and should meet quite frequently (e.g. one a month) in order to approve funding for due diligence , progress due diligence processes and ensure investment proposals are prepared to an appropriate standard ready for Board approval. The Steering Committee would set the upper limit for the amount of money that the Investment Committee could authorise. FSDA Board Investment Committee Impact Committee Audit Committee Reviews concept notes Approves due diligence spending Oversees due diligence processes Clears investment proposals for Board approval Meets once a month Reviews FSDA performance against targets and impact metrics Proposes independent evaluators for Board selection Reviews reports on impact to present to Board Meets 2/3 times a year Ensures fiscal and ethical accountability of organisation Ensure appropriate financial management is in place Liaises with auditors and service provider Meets 2/3 times a year

FSDA Board composition
FSDA’s broad mandate leaves a large number of stakeholders and potential beneficiaries with an interest in FSDA’s success. However, FSDA intends to have a lean Board structure to ensure efficient decision-making with limited ex officio representatives. FSDA aims to attract directors who are primarily African and from the private sector. Ideally 50% will be women. Directors should be drawn from across Africa but should be able to travel. There should be sufficient technical expertise on financial sector development but experience of other industry sectors (e.g. IT, FMCG) may be useful in order to introduce fresh perspectives, especially where the director has experience of HR or of delivering or buying services. Representation from the business school or academic environment would be helpful. Independent Chair FSD representative FSDA Director African; private sector or academic (4) During the transitional phase, as FSDA scales up, it is hoped that CGAP will continue to be represented on the Board

FSDA organisational structure
Director Board of Directors Executive Assistant Team Leader (Senior Consultant), Change Management Head of Education Senior Project Director Head of Research Finance Manager M&E Manager Office Manager Consultants, Change Management (2) Communications Manager In addition to a core team of 14 full time staff, FSDA will make extensive use of consultants on retainers as well as consultancy firms to manage specific projects. Procurement arrangements for this will have to be sufficiently flexible if project delays are to be avoided. A key early decision is whether to outsource the Finance Manager function to a professional service provider (see earlier slides on governance). Cost and benefits will have to be weighed. Total staff costs are £5.5m over the 5 year period, or 18.5% of total project spend. Two-thirds of these costs are charged against programmes. Analysts (2)

Section 7 – Financial information. Overview of 5 year budget
2013/14 2014/15 2015/16 2016/17 2017/18 Total Total (%) Programme delivery costs Skills development and training 1.3 2.6 2.8 3.6 13.0 43 Knowledge and evidence 0.7 1.1 1.2 5.6 19 Thematic programmes 0.4 0.8 0.1 3.7 12 Regional platform 0.5 0.6 1.0 11 Total delivery costs 6.2 7.0 4.4 26.0 87 Programme management costs Total management costs 0.9 4.0 13 TOTAL FSDA COSTS 3.5 6.8 7.9 5.3 30.0 100 Staffing Own staff 6 15 Consultants 2 3 4

Section 7 – Financial information Programme management costs
£’000 2013/14 2014/15 2015/16 2016/17 2017/18 Total Salaries 347 420 452 485 522 2,226 Other management costs 93 180 194 208 224 898 Sub-total 440 600 645 693 745 3,124 FSDA set-up 155 M&E 50 100 200 300 750 700 893 1,045 4,029 Salary inflation is at 7.5% per annum. Salaries are assumed to account for 70% of recurring overheads, excluding M&E. This is based on experience at similar organisations. Programme management salary costs are 36% of total staff costs, the remaining 64% being charged against programmes. Other management costs comprise general admin costs (audit, legal etc.), premises, communications, Board costs etc. Assumptions based partly on Dalberg estimates (i.e. locally-informed). M&E is 2.5% of total SIMBA budget.

Section 7 – likely causes of variances against budget projections
Underspends will likely be caused by: External factors: Internal processes within FIs slowing the on-boarding process or complicating change management processes or de-railing them altogether. Weak demand for FSDA support (e.g. in Building Services Markets sub-pillar) – or demand is harder to stimulate than anticipated . Internal factors: Procurement processes applied to FSDA’s broad scope of activities creating delays (i.e. high transaction costs). Hiring takes longer than anticipated and new hires slow to get going. Overspends will likely be caused by: Projects requiring larger amounts of investment than anticipated. Sub-programmes that demonstrate ability to absorb more investment than planned Difficulties in raising co-funding. Cost of the professional service provider may be much higher than budgeted costs of full time Finance Manager. New hires may be more expensive than anticipated. Salary inflation may be higher than 7.5% p.a. provided. Other admin costs (e.g. premises costs) higher than budgeted. There is significantly greater near term risk of an underspend than an overspend but good prospects overall that the platform, once built, will be highly effective at disbursing imaginatively and at scale

ANNEXES ANNEX 1 Detailed budget assumptions
ANNEX 2 Key responsibilities of staff members ANNEX 3 Draft SIMBA logframe

Annex 1 – Detailed budget assumptions (1/3)
1. Skills Development and Training Change management Model built on basis of 20 FIs – 9 “large” (£750k FSDA investment per institution to produce 500k new clients after 5 years ; 11 “small” (£150k FSDA investment to produce 150k new clients). First crop of new clients lag Year 1 investment by a year. Staff costs (at peak) – 1 Team Leader, plus 2 other full-time staff on payroll; plus use of 3 external consultants at 25 days each (£700 per day). Staff cost inflation at 7.5%; consultant inflation at 10%. Travel budgeted – each consultant assumed to do 6 trips p.a. Other change management initiatives. 2 initiatives provided for – 1 at £1m over 4 years, 1 at £400k over 4 years; assume FSDs will contribute to roll-out costs. £50k annual provision for external support to manage processes (e.g. RFPs). Building services markets 3 scoping studies at £100k each. General market building – each of the 3 services markets allocated 3 “packages” of market-building support (seminars, publications, targeted research etc.) at £60k per package. Pump priming demand: different approaches for the 3 markets but a mixture of (i) grants programmes (ii) small grants window for needs assessments (£25k per institution) (iii) larger challenge funds (£ k per institution). RFPs repeated twice over 5 years. Stimulating supply: again, a mix across the 3 industries but includes provision for dedicated training (e.g. via business schools), small grants for needs assessments and business plan development grants. General oversight: retainers for specialist consultants (£15k per annum each), 1 for each industry. Centres of Excellence Research: landscaping study (£125k); other scoping studies (total £100k); other research (£25k each). Engagement with Centres: support for course material development (£180k), scholarships (£300k).

2. Knowledge and Evidence Cross-country research Assume 2 self-generated studies p.a. at £100k each. £50k p.a. to support other people’s multi-country research. £50k p.a. for an Africa research conference. Data products FinScope related: Academic grants (£100k over 4 years). Expert Panel (£190k over 4 years). FSD facilitation on FinScope (£155k over 5 years). Other data products: Contribution to pilots (£200k). Proof of concept research (£120k). Learning programmes Provision for 2 programmes – 1 at £1.15m over 4 years, the other at £400k over 4 years. Impact evaluation £175k initial cost of consultative process; £25k p.a. follow-on work thereafter. Portal MIX - £400k over the 5 year period. Includes £15k p.a. for external PR. 3. Thematic programmes Credits markets development £1.3m starting in 2013/14 (Zambia project follow-on). Payments and agriculture finance (£1m each) start in 2014/15.

4. Regional platform Regionalisation Funding for regional pilots (e.g. cross-border retail payments) at £50-100k p.a. Regional facilitation (e.g. EAC etc) £50-75k p.a. Cross-country initiatives Catalysing FI initiatives in new countries assumes 5 scoping visits at £25k each, all complete by Year 3, and thereafter total investment across the 5 countries of £540k. Grants to partners – assumes 3 grants made: £100k in Year 1, £250k Year 2, £250k Year 4. Facilitation Assumes £70k p.a. for FSD network facilitation - £350k in total over 5 years. Reference groups - £70k p.a. rising to £150k p.a. by Year 5. FSDA post SIMBA initiatives £825k total provision over 5 years. Model assumes due diligence on 3 opportunities (at £75k each) and pilots on two (at £200k each).

(Senior Consultant), Change Management Consultant, Change Management
Annex 3 – Key responsibilities of staff members (1/4) Key responsibilities Reporting lines Lead development and implementation of strategy and plans. Establish and lead a team of professionals to deliver on log frame. Manage the external stakeholder relationships, particularly with FSD Directors. Provide thought leadership on financial inclusion in Africa. Early on, FSDA Steering Committee, then Board of Directors after legal structure in place Director Manage and administer capacity building grants / investment programmes, including identification of FSP partners through networks. Maintain relationships with senior leaders at FSP partners. Develop needs assessment framework and methodology to conduct. Develop Africa capacity building services providers database. Director Team Leader (Senior Consultant), Change Management Maintain relationships with senior leaders at FSP partners. Contribute to development of needs assessment framework. Conduct needs assessments and support design of specific programme interventions with FSP partners. Manage external (contractor) relationships, as required. Oversee collection of data from FSP partners. Contribute to African capacity building services providers database. Team Leader, Change Management Consultant, Change Management

Senior Project Director
Annex 3 – Key responsibilities of staff members (2/4) Key responsibilities Reporting lines Develop strategy for Centres of Excellence programme, particularly outreach to potential partner institutions, identifying and reviewing areas of focus Manage team to deliver on results along with partners Maintain quality of education curricula, and programme execution Director Head of Education Director Validate and select key programme areas of focus Develop interventions to address challenges in a sub-set of SSA countries Develop partnerships with key SSA and global organisations Manage and administer innovation interventions Senior Project Director Director Identify strategic areas of focus for FSDA data collection and research projects Provide strategic advice on key learning and impacts for dissemination Maintain relationships with relevant stakeholders (researchers, FSDs, co-funders) Provide input into and ensure quality of all research/analytical outputs Head of Research

CommunicationManager
Annex 3 – Key responsibilities of staff members (3/4) Key responsibilities Reporting lines Design and maintain impact measurement methodology for each FSDA output and programme. Ensure data and analysis integrity and oversee data collection activities. Manage analysts and external relationships on data collection, analysis. Head of Research M&E Manager Conduct (economic, statistical) analysis of data received. Complete landscape of available relevant information and the gaps: Identify relevant lessons learned for existing or new programmes. Identify research questions in coordination with other FSDA programmes. Maintain Africa capacity building services providers database, with input from other FSDA teams. Maintain FSDs database(s) . Identify common M&E challenges and develop solutions. Head of Research Analysts Design, implement, and evaluate communications strategies for FSDA and for each FSDA pillar. Identify opportunities for dissemination of research, information, and achievements to demonstrate thought leadership, and coordinate dissemination, e.g., regional for a, generation of content for FSDA website. Provide strategic advice on communications and knowledge sharing. Head of Research/Director CommunicationManager

Annex 3 – Key responsibilities of staff members (3/4)
Reporting lines Prepare budgets, financial projections for projects and various initiatives. Monitor spending and complete regular reports to management, board. Support development and implementation of funding strategy, i.e., fundraising and development of sustainable entities / sources of funding including fee structure. Implement financial management and reporting system. Oversee administrative functions. Director Finance Manager Ensure office is maintained and equipped with the technology to support programme delivery, e.g., computers, phones, furniture, etc. Manage day-to-day operations of the office, including travel. Support Finance Manager in procurement and payment processes, preparing invoices, reviewing expense reports, and providing input to the regular management/Board reports. Finance Manager Office Manager

Annex 3 – Draft SIMBA logframe

STRATEGIC PLAN 2013 - 2018.

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