Promoting inclusive growth is one of the two overarching objectives of the Ten-Year Strategy (2013-2022) of the African Development Bank (“AfDB” or “the Bank”). While there has been substantial progress over the past decade, limited access to finance continues to be a key constraint for households and firms in Africa, particularly for small and medium enterprises (SMEs). The environment in which African financial systems operate has also changed significantly in recent years, as recalled in the Bank’s 2014-2019 Financial Sector Development Policy and Strategy (FSDPS). In line with the Ten-Year Strategy, increasing access to finance while paying particular attention to reaching the traditionally underserved was one of the three objectives of the FSDPS, while the two others were to deepen financial markets and to safeguard the stability of Africa’s financial system. To provide credible information on the role of the Bank in increased access to finance and financial inclusion in Africa, and to inform the development of the Bank’s next Financial Sector Development (FSD) Strategy, Independent Development Evaluation conducted a thematic evaluation to assess the relevance and the quality of the FSDPS, as well as the relevance, quality of design, effectiveness, efficiency and sustainability of FSD operations approved between 2011 and 2018. The evaluation covered both the period prior to and following the adoption of the FSDPS.
The evaluation examined 226 operations approved by the Bank in support of FSD over the 2011-2018 period, for a total valure of UA 9,326 million. Over this period, the number of countries receiving financial resources increased from 19 to 31. Lines of credit remained the main instrument used, but their share in the portfolio decreased from 60 percent of FSD operations during 2011-14 to 34 percent during 2015-2018.
The evaluation evidence came from a triangulation of quantitative and qualitative data collection methods, with case studies in Burkina Faso, Cameroon, Kenya, Nigeria, Namibia, Tunisia, and Egypt (synthesized in a separate project cluster report). Due to limitations on the availability of information at the end-beneficiary level, the performance of the operations was evaluated at the client level.
The evaluation found that recent developments in the financial sector require attention in the revision of the 2014-2019 FSDPS. In addition, the FSDPS’s hybrid nature (combining both a policy and a strategy) posed its own challenges: while the document reflected a state-of-the-art in financial sector knowledge, there was limited clarity on the relationship between the policy and the strategy, and the definitions of the concepts used. Findings from the country case-studies showed that the high priority given to access to finance in the FSDPS and partner countries was not reflected in the Bank’s Country Strategy Papers (CSPs). The CSPs refer to the financial sector mostly as a channel to improve financing for priority sectors, but do not place sufficient emphasis on the need to build strong, sustainable and resilient financial systems. Despite increased internal capacity to deliver, the evaluation found weak coordination of FSD activities across the AfDB.
In terms of operational performance, the Bank’s operations were found to be in line with the FSDPS’s objectives and relevant to their respective client and country contexts, but the majority did not necessarily serve the underserved. Operations also did not seem to form part of a coherent Bank strategy toward FSD. While the operations were found effective in providing resources and services otherwise unavailable to client financial institutions, it was not feasible to track and measure development outcomes for end-beneficiaries. Although about half of the Bank’s FSD operations were found to be efficient in terms of respect of time, overall efficiency was deemed only partially satisfactory due to inefficient communication, the lack of an automated procurement system, and clients' complaints of overly prolonged processes. Finally, although the AfDB provides much needed long-term funding to its target markets and has often helped clients access additional funding from other IFIs, the evaluation concluded that its operations tended to provide temporary solutions and did not address the root causes of constraints to FSD.
The evaluation made three core recommendations, with priority actions:
- The role of the Bank in FSD should be clarified. This could be done by focusing more on the Bank’s strategic priorities, conducting sector diagnostics that identify barriers to access to finance at the country and regional levels, and being more explicit on how operations contribute to FSD;
- Position the AfDB as a key player in FSD, by stepping up the Bank’s engagement in policy and regulatory dialogue, formalizing the coordination of the Bank departments involved in financial sector activities, improving outreach and deepening relationships with sector stakeholders, and increasing the resources for operations aimed at fostering regional financial integration;
- The Bank should improve the benefits for the intended target groups. This could be done by better defining and measuring the project development outcomes and benefits for target groups, building on effective approaches to support SME finance, moving from a pipeline to a portfolio approach, and using a more deliberate approach to narrow the gender gap in access to finance.
Task Manager: Albert Eneas Gakusi, Chief Evaluation Officer