AFRICAN DEVELOPMENT BANK GROUP ADB GROUP FINANCIAL SECTOR
AFRICAN DEVELOPMENT BANK GROUP ADB GROUP FINANCIAL SECTOR STRATEGY AND ACTION PLAN PRESENTATION BY MR. GABRIEL NEGATU, DIRECTOR, GOVERNANCE AND FINANCIAL REFORMS DEPARTMENT AEC, 27 TH OCTOBER 2010
AFRICAN DEVELOPMENT BANK GROUP PREPARATION OF BANK STRATEGY BENEFITS FROM A NUMBER OF REINFORCING VIEWS AND CONTEXTS EMERGING ISSUES AND LESSONS LEARNED DURING LAST DECADE AND RECENT FINANCIAL CRISIS LESSONS LEARNED FROM IMPLEMENTATION OF THE FINANCIAL SECTOR POLICY AND FROM OPERATIONS OF OTHER DEV PARTNERS GUIDANCE FROM ADF DEPUTIES AND THE MEDIUM TERM STRATEGY RECOMMENDATIONS FROM THE HLP AND THE MANAGEMENT RESPONSE BANK STRATEGY INPUTS FROM CONSULTATIONS WITH STAKEHOLDERS
AFRICAN DEVELOPMENT BANK GROUP STRATEGY DEFINES FINANCIAL SECTOR TO COVER THREE COMPONENTS OF FINANCIAL SECTOR q POLICIES – Monetary, Financing of public sector, External sector, Provision of financial services, q FINANCIAL GOVERNANCE AND INFRASTRUCTURE – Legal and Regulatory Systems, Accounting and Audit Systems, Payments Systems q SECOND FINANCIAL PHASEINSTITUTIONS REFORMS PAID ATTENTION TO - Banks, NBFIs, Money and Capital Markets
AFRICAN DEVELOPMENT BANK GROUP AFRICAN COUNTRIES HAVE MADE PROGRESS IN FINANCIAL SECTOR REFORMS q Reforms built on new paradigm that rationalized role of government q Before reforms, Governments routinely intervened in the financial markets §Controlling interest rates and exchange rates §Directing credit to preferred sectors §Restrictions on external capital transactions §Fiscal policy the preferred option, while monetary policy was largely passive q Outcome – Government failure accentuated the result of market failure q New paradigm – Role of Government is to create an enabling environment for markets to
AFRICAN DEVELOPMENT BANK GROUP AFRICAN COUNTRIES HAVE MADE PROGRESS IN FINANCIAL SECTOR REFORMS THREE PHASES OF REFORMS q INITIAL REFORMS SECOND PHASE REFORMS --- continued attention to policies, but also to reform of institutions, regulatory and supervisory frameworks q q q -- changing policy; establishing financial stability putting emphasis on creating conditions for private sector, in addition to financial governance and financial infrastructure RECENT REFORMS -- PROGRESS MADE -- markets liberalized, banking systems open, capital markets established
THE CONTINUING FINANCIAL SECTOR REFORM AGENDA HAS TO ADDRESS CONNECTED DEFICIENCIES IN AFRICA’S FINANCIAL SECTOR Intermediation Deficiency Poverty Reduction Deficiency Development Deficiency 6
AT THE BANK, RESULTS OF PAST INTERVENTIONS HAVE BEEN MIXED v. At Regional Level – Constrained by lack of harmonized frameworks, lack of capacity at REC and national levels, and mismatch between commitments and actions v. At National Level – Constrained by human and institutional capacity limitations of recipient countries; but also lack of Bank ability to engage in continuous dialogue; and no immediate access to assessment on countries v. At Sector Level – Results of FSALs depended on the macroeconomic environment v. At Financial Institution Level – While Bank interventions provided needed MLT to private sector, especially SMEs, support was seldom put in the broader context of conducive environment of the country 7
HOWEVER, THERE ARE IMPORTANT INSTITUTIONAL CHANGES AND OPPORTUNITIES TO REFINE BANK INTERVENTION v. Institutional Reforms – New or reinforced departments • A new department for financial governance and financial reforms • Division to strengthen financial integration • Broadened the scope of Private Sector operations; and • A new complex to reinforce Bank activities in knowledge management, capacity building, and statistical analysis v. Field offices have been established to facilitate continuous dialogue with client countries and organizations and in-field collaboration with other Development Partners v. Participation in the APRM as a Strategic Partner has created opportunities to participate in comprehensive assessments of countries v. Hosting of MFWFA Secretariat has enhanced opportunities for collaboration with other DPs in programs and operations 8
AFRICAN DEVELOPMENT BANK GROUP STRATEGY… § § SPELLS OUT GUIDING PRINCIPLES DEFINES THE CORE AND STRATEGIC (OR OPERATIONAL) OBJECTIVES IDENTIFIES LEVELS OF INTERVENTION AND PRIORITIZES INTERVENTIONS SPELLS OUT IMPLEMENTATION MODALITIES
AFRICAN DEVELOPMENT BANK GROUP BANK STRATEGY IS GUIDED BY THE FOLLOWING PRINCIPLES SELECTIVITY AND VALUE ADDED COMPARATIVE ADVANTAGE AND MANDATE COUNTRY FOCUS AND OWNERSHIP COMPLEMENTARITY AND PARTNERSHIP DEVELOPMENT EFFECTIVENESS AND RESULTS RELEVANCE AND SYNERGY
AFRICAN DEVELOPMENT BANK GROUP STRATEGY… Strategic Objective • Ensure coherence and synergy in Bank support to financial sector development; • Enhance regional collaboration and harmonization to strengthen financial integration; • Strengthen policy dialogue, analytical work and country systems towards integrated and coherent financial sector development; • Improve financial governance and support the strengthening of financial infrastructure towards deepening the financial sector; and • Enhance the diversity and commercial viability of financial institutions to increase opportunities for the Bank’s funding of MSMEs.
AFRICAN DEVELOPMENT BANK GROUP SPECIFIC BANK ACTIVITIES DETERMINED BY A DOUBLE FILTRATION SYSTEM Possibility of Value addition – (i) Likelihood of development impact; and (ii) Level of intervention of other DPs Currently Limited Partner Support for: • Building Institutional Capacity • Leveraging country assessments for long-term plans • Strengthening regional financial integration v Bank Comparative advantage as determined by institutional mandate and capability : Institutional Reforms, MTS, HLP all suggest Bank support to: Infrastructure development; Financial Governance (Regulatory reforms and transparency); Private Sector Development (improving the business environment and catalytic financing); Regional financial integration; Capacity building and knowledge development
AFRICAN DEVELOPMENT BANK GROUP FINANCIAL SECTOR ACTIVITIES WILL BE IMPLEMENTED AT FOUR LEVELS AT THE REGIONAL LEVEL: the NEPAD and RI Department, Regional Departments, OSGE and others will work together to: • Promote Regional Financial Integration through building partnerships and enhancing collaboration at the REC level Interventions will focus on § assessments of RFI to monitor progress and identify gaps § improving macroeconomic convergence; § harmonizing financial governance and standards; § building or strengthening regional financial infrastructure; and § removing regulatory hurdles that hamper the development of financial systems
AFRICAN DEVELOPMENT BANK GROUP FINANCIAL SECTOR ACTIVITIES WILL BE IMPLEMENTED AT FOUR LEVELS AT COUNTRY LEVEL: Regional Departments, OSGE and others will work together to • Strengthen country systems and institutions for managing financial sector soundness to complement lead role of the BWIs • Bank support will focus on strategy development and institutional capacity development in areas of Macroeconomic Management; Financial Regulation and Supervision; and Combating Money laundering In Macroeconomic Management • Enhance support to APRM and leverage process for country assessments • Support to formulation of Financial Sector Development Plans • Build institutional capacity for macroeconomic management Will leverage ongoing Bank Activities for other areas (Corporate Governance, Money laundering) Targeted support will also be given Fragile Countries and MICs
AFRICAN DEVELOPMENT BANK GROUP FINANCIAL SECTOR ACTIVITIES WILL BE IMPLEMENTED AT FOUR LEVELS AT SECTOR LEVEL, OSGE, OPSM, Regional Departments and others will collaborate to: • Provide support to strengthen financial governance and financial infrastructure towards improving the business environment and mobilization of MLT • Approach will encourage reliance on the markets and private sector to enhance deepening and diversification of financial markets Areas of Support will include • Capital market development • Improving capacity of financial institutions to intermediate in MLT • Supporting improvement of regulation towards DFIs and MFIs
AFRICAN DEVELOPMENT BANK GROUP FINANCIAL SECTOR ACTIVITIES WILL BE IMPLEMENTED AT FOUR LEVELS AT THE FINANCIAL INSTITUTIONS LEVEL: the OPSM will provide funding support and capacity building to enhance the diversity and commercial viability of financial institutions to increase opportunities for the Bank’s MLT funding of MSMEs In addition to commercial banks, the Bank will pay attention to: • Development Finance Institutions • Microfinance Institutions • Non-Bank Financial Institutions
AFRICAN DEVELOPMENT BANK GROUP INSTRUMENTS OF BANK SUPPORT §ADB/ADF FINANCING INSTRUMENTS -PBL, PSOS, SPECIAL FACILITIES, COFINANCING INSTRUMENTS OF BANK SUPPORT § USE ADVOCACY, POLICY DIALOGUE, KNOWLEDGE PRODUCTS, ENHANCED PARTNERSHIPS
AFRICAN DEVELOPMENT BANK GROUP IMPLEMENTATION ARRANGEMENTS q SEQUENCING, BASED ON PRIORITIZATION; RESOURCE AVAILABILITY q ALIGNMENT AND CO-ORDINATION OF REGIONAL, COUNTRY AND SECTOR STRATEGIES q STRATEGY TO BE REFLECTED IN BUSINESS PLANS OF OSGE, ONRI, AND OTHER OPERATIONS DEPARTMENTS q ENHANCE IMPLEMENTATION BY FOSTERING STRATEGIC PARTNERSHIPS WITH OTHER DONORS q CATALYZE MOBILIZATION OF ADDITIONAL RESOURCES q ENSURE REGULAR M & E OF PROGRESS
AFRICAN DEVELOPMENT BANK GROUP CONCLUSION FINANCIAL SECTOR DEVELOPMENT IN AFRICA IS IMPERATIVE THERE ARE CHALLENGES, BUT ALSO OPPORTUNITIES TO ENHANCE FSD BANK STRATEGY RESPONDS TO THESE CHALLENGES AND OPPORTUNITIES BANK STRATEGY REINFORCES ITS ROLE AS KNOWLEDGE BROKER, CATALYTIC FINANCIER, AND STRATEGIC PARTNER q GUIDING PRINCIPLES EMPHASIZE OWNERSHIP, SELECTIVITY, FOCUS ON RESULTS, AND STRATEGIC PARTNERSHIP q BANK WILL SCALE UP ITS INTERVENTION BY IMPROVING INTERNAL IMPLEMENTATION ARRANGEMENTS AND USING ITS FINANCING INSTRUMENTS TO LEVERAGE MOBILIZATION OF RESOURCES q q
AFRICAN DEVELOPMENT BANK GROUP THANK YOU
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