1. AGENCE FRANCAISE DE DEVELOPPEMENT The quest for sustainability in National Development Banks Ignace MONKAM-DAVERAT Financial and Private Sector Development Department monkam-daverati@afd.fr AD HOC EXPERT MEETING ON « Rethinking the role of National Development Banks »

2. Ad Hoc Expert Group Meeting - New York, 1-2 December 2005 2 2 The AFD Group l The AFD Group: 3 the main institution in France with a global mandate for financing development 3 A specialised financial institution, subject to banking regulations and external auditing, 3 Its areas of expertise and know-how: urban development, infrastructure, rural development, industry, financial systems, the environment, education and health care. 3 The Agency offers a wide array of financial instruments ranging from subsidies to loans at market conditions, adapted to the economic situation of the country in which they are being used. 3 The Agency is active on five continents, where it finances economic, environmental and social projects undertaken by local authorities, public companies, territorial bodies and the associative and private sector. 3 Proparco is its specialised subsidiary in financing and promoting the private sector

3. Geographical Coverage Over 60 countries in Africa, Mediterranean countries, Asia and the Caribbean - a network of 45 local offices

4. Ad Hoc Expert Group Meeting - New York, 1-2 December 2005 4 4 Introduction l Consequences of inefficient financial systems in developing countries : Financial needs are not satisfied on local capital market Insufficient financial institutions and financial infrastructure to favour resource circulation between savers and borrowers (financial intermediaries, financial markets, settlement systems, …) Inadequate funding with maturities and interest rates that match the investment needs of the productive sector NDBs can be a solution to fill the gap

5. Ad Hoc Expert Group Meeting - New York, 1-2 December 2005 5 5 The AFD experience with NDBs l In Africa : support to 25 NDBs between 1960 and 1990 as : shareholder technical assistant lender l Over the world in countries of operations: lending to almost 100 NDBs This experience allow the AFD to draw lessons regarding key factors for sustainability of NDBs.

6. Ad Hoc Expert Group Meeting - New York, 1-2 December 2005 6 6 Sustainability in National Development banking Keys for success NDB GOVERNANCE AND MANAGEMENT OPTIMISATION DEVELOPMENT IMPACT OPTIMISATION COMPETITIVE POSITIONING

7. Ad Hoc Expert Group Meeting - New York, 1-2 December 2005 7 7 Sustainability in National Development banking 8 key factors for success NDB GOVERNANCE AND MANAGEMENT OPTIMISATION DEVELOPMENT IMPACT OPTIMISATION COMPETITIVE POSITIONING 1.Subsidiarity 2.Optimisation of impact 3.Board and management independence 4.Risk assessment and management 5.Access to financial resources 6.High level of own funds and prudential rules. 7.Control of operations for third parties 8.Adaptation and anticipation

8. Ad Hoc Expert Group Meeting - New York, 1-2 December 2005 8 8 Key factors for success Competitive positioning 1.A principal mission clairely identified and subsidiary to private local financial intermediaries by : ØThe specificity of the sectors financed (infrastructure, housing, agriculture, …) ØThe specificity of the target clientele (companies, SMEs, farmers, MFI …) ØThe specificity of the geographic zone of intervention (specific region of the country, regional integration,... ). ØThe specificity of the financial instruments provided ( intervention with own fund, subsidised loans, garanties, long term resources…)

9. Ad Hoc Expert Group Meeting - New York, 1-2 December 2005 9 9 2.The optimisation of the impact on development: ØDefinition of indicators of impact and follow-up in the implementation of projects ØUse of impact indicators as a tool: 4to negotiate and communicate externally with Authorities about the contribution to national development objectives, 4 to converse with partners like donors 4to improve project impact of projects on final beneficiaries. Key factors for success Development impact optimisation

10. Ad Hoc Expert Group Meeting - New York, 1-2 December 2005 10 Key factors for success Governance and management optimisation 3.A corporate governance whitch preserve the independence of the board and the management : ØIn countries where public governance is weak, shareholding where the state does not have the majority share. ØA board of direction whitch reflect the shareholders but also opened to independent administrators from the private banking sector ØA general management which masters banking skills and the particularities of development

11. Ad Hoc Expert Group Meeting - New York, 1-2 December 2005 11 4.The mastery of risk and banking skills: ØThe access to skills adapted to the risk control (methodology, financial analyst skills, granting procedures, use of guarantees, existence of operational risk limits, independence in grant decisions, following and valuing risk) ØThe soundness of internal control (procedures, organisation, auditing, audit committee) ØThe optimisation of financial management (treasury, asset and liability management) and the pricing adapted to risk ØThe monitoring of skills and staff Key factors for success Governance and management optimisation

12. Ad Hoc Expert Group Meeting - New York, 1-2 December 2005 12 5.The sustainable access to subsidised resources and to the local capital market : ØThe need to have a wide array of financial instruments, ranging from subsidies to subsidised resources and loan at market conditions ØThe mobilisation of subsidies and concessional loan from the State and donors ØThe mobilisation of resources at market conditions on the local capital market, on the international capital market Key factors for success Governance and management optimisation

13. Ad Hoc Expert Group Meeting - New York, 1-2 December 2005 13 6.A high level of own funds and the respect of prudential limits in order to face: ØHigh-risk environment ØHigh-risk projects ØOperational risk Key factors for success Governance and management optimisation

14. Ad Hoc Expert Group Meeting - New York, 1-2 December 2005 14 7.The control of operations for third parties, particularly they are authorities : ØThe initial negotiation on the service and its estimation ØAllocation of dedicated means and its management outside every day banking operations Key factors for success Governance and management optimisation

15. Ad Hoc Expert Group Meeting - New York, 1-2 December 2005 15 8.Adapting and anticipating evolutions in a changing environment ØContribution to thoughts concerning evolutions in sectors of intervention  Partnership with local financial intermediaries, donors, local financial markets, final beneficiaries of loans ØPermanent dialogue with Authorities Key factors for success Governance and management optimisation

16. Ad Hoc Expert Group Meeting - New York, 1-2 December 2005 16 l Key factors presented must be adapted with each national context. l NDB is a instrument to alleviate ineffectiveness of local financial and banking and sector but it isn’t the only one. l This instrument can be expensive regarding public resources (subsidies, loan with grant element, free taxes,…). So Authorities are going to see if they can meet the same goal with less resources. l The answer depend on each national contexte and the maturity of it financial and banking sector. Conclusion

17. Ad Hoc Expert Group Meeting - New York, 1-2 December 2005 17 THANK YOU FOR YOUR ATTENTION