Project

Tailored solutions for supporting financial institutions in EU partner countries

Jonathan Erasmus

A NIRAS-run facility implemented by PROPARCO, the private sector financing arm of Agence Française de Développement Group, provides customised technical assistance solutions aimed at helping financial institutions in EU partner countries.

September 20, 2024

SDG: #5, #8, #13
SECTORS: Development Consulting
COUNTRIES: Georgia, Madagascar, Seychelles, South Africa, Tunisia and Uganda
DONOR: European Union
CLIENT: PROPARCO, AFD Group
CONTRACT VALUE: €3.6M
DURATION: 04/2022-12/2024

Who finances the financiers? This may seem an odd question to ask, but it is a highly relevant question for some countries whose financial institutions are still developing their capacity to serve the most marginalised sectors of their society.

“Supporting financial institutions to better serve their clients represents excellent value-for-money for EU financing in terms of reach and impact, and is more likely to lead to greater financial resilience in the medium-to-long term, as well as sustainability of the technical assistance actions.”

Crisis Emergency Response Technical Assistance Facility (CERTAF) Team Leader John Warren

One of the main obstacles to wealth creation in EU partner countries is a lack of access to finance. This concerns youth, women and the rural working poor in particular due to their limited options for credit with formal financial institutions. One of the most effective ways to help these sectors is, of course, to give them the means to start livelihood activities that generate revenue. However, financial systems need support in serving these sectors owing to challenges with liquidity and the higher risk of default by borrowers. Lower-tier banks and microfinance institutions are often ill-equipped and poorly integrated into the wider financial system. In addition, financial institutions in partner countries are more vulnerable to external shocks created by crises such as the COVID-19 pandemic, and the evolving nature of worldwide conflict and climate change impacting micro-, small- and medium-sized enterprise (MSME) supply chains and day-to-day activity.

Given the challenges that these financial institutions face, investing in measures that would improve their resilience and operational capacity is a necessity, and this is a strategy that the EU and PROPARCO, the private sector financing arm of the Agence Française de Développement Group (AFD), have enacted with a number of its partner countries.

One of CERTAF's goals is support financial institutions in adapting their models, operations, and products to better address the needs of MSMEs.

Technical assistance to developing financial institutions

The Crisis Emergency Response Technical Assistance Facility (CERTAF) is a facility that provides technical assistance, in the form of specifically designed training and consultancy services, to eligible financial institutions that are beneficiaries of the European Fund for Sustainable Development (EFSD), the financing arm of the EU External Investment Plan that promotes sustainable investment in Sub-Saharan Africa and the EU Neighbourhood. The CERTAF consortium is composed of NIRAS France, the lead contractor NIRAS A/S, based in Allerød and Copenhagen; Deloitte Afrique, headquartered in Paris; and LFS Advisory, in Berlin. CERTAF draws on the respective strengths of each consortium member to provide tailored technical assistance to each financial institution it serves.

CERTAF was originally contracted by PROPARCO as part of the EU’s response to the financial disruption caused by the COVID-19 pandemic in its partner countries. Drawing on EFSD funds, PROPARCO has provided credit lines to a number of financial institutions in Sub-Saharan African and EU Neighbourhood countries through loan agreements that go on to support MSMEs. CERTAF’s objective was to support this financing throughout the period of recovery from the COVID-19 pandemic, complementing the loan agreements with technical assistance. As the immediate impact of the COVID-19 pandemic has eased, the focus of the facility has shifted from supporting financial institutions’ immediate response to the pandemic to supporting resilience against future and newly evolved crises as previously highlighted.

CERTAF Team Leader John Warren shares that there are two broad objectives of CERTAF assistance: “The first is to support financial institutions in protecting their employees and customers against crises and in continuing their business operations. The second is to support these institutions in adapting their models, operations, and products to address the needs of MSMEs and to build their resilience against future crises as well.”

“CERTAF makes every effort to provide a timely and tailored response to the technical assistance demands of its partner financial institutions thanks to the depth of experience of its Key and Non-Key Experts, and its Facility operational approach. This includes rapid responses to specific requests for support alongside more comprehensive support packages identified through partner needs assessments and subsequent prioritisation.”

CERTAF Team Leader John Warren

CERTAF’s technical assistance can fall under a number of areas of intervention:

strategic development;
digitalisation and cyber-security;
CRM (Customer Relationship Management) systems;
conformity and certification to industry standards;
crisis-related remote working and business continuity;
management of portfolio quality and non-performing loans;
process efficiency and productivity improvements;
liquidity management;
environmental, social and governance (ESG) capacity building, including gender aspects;
internal health and safety improvements;
risk management (e.g. currency risks, forecasting, regulatory reporting, etc.);
product developments to respond to MSMEs’ crisis-related challenges.

The facility currently provides this assistance to seven financial institutions located within the regions of Sub-Saharan Africa and the EU Neighbourhood—two in Georgia, and one each in Tunisia, Senegal, Uganda, Madagascar and South Africa. It benefits from EU delegated funding to deliver technical assistance in these countries.

Customised solutions for different challenges

According to John, the main outcome of CERTAF’s operations is that it provides customised technical assistance that meets the identified needs of its partner institutions. The process starts with an online initial presentation of the facility teams to the partners, that includes the overall objective and methodology of the needs assessment process, and how this will provide the basis for determining appropriate technical assistance support to the institution.

These initial meetings also provide the opportunity for the partner financial institutions to give an overview of their operations and to put forward potential areas for technical assistance support.

The next step is needs assessment; through a dynamic and in-depth collaborative process with these partner institutions. This is a real effort of co-creation with each financial institution to make sure the assistance is going to deliver maximum impact in terms of capacity development and resilience. The objective is to identify how CERTAF technical assistance can add value to the institution rather than be seen to be conducting a due diligence exercise. Our emphasis is on building strong and lasting relationships with our partner financial institutions.

CERTAF gains an overview of their operations and is able to put forward potential areas for technical assistance which reflect the aforementioned areas of interventions. This helps CERTAF to adapt the composition of its assessment team to the requirements of the institution.

The assessment includes a field mission and a SWOT analysis, which is helpful in creating a link between the different areas of intervention and the identification of specific technical assistance requirements.

As part of the assessment process, a report is drafted. The assessment report provides the basis for meetings involving CERTAF, PROPARCO, and the financial institution’s senior management team to decide upon the areas in which CERTAF will provide technical assistance to the institution. CERTAF then prepares terms of reference and a workplan to describe the objectives, scope, logistics and timeframe of this technical assistance, with input from the financial institution to ensure these are aligned with their requirements. The terms of reference are submitted to PROPARCO for review and will provide the basis for subsequent technical assistance to the institution.

The CERTAF team

Besides this specific technical assistance, a second component of CERTAF’s support comprises online training and coaching that are identified as being of interest to a number of partner financial institutions and potentially other PROPARCO partner institutions. The first in the series of these online training sessions covers digitalisation and business process improvement.

Towards effective outcomes

John shares that a noteworthy success story has been CERTAF support for the development of an agricultural financing strategy at a microfinance institution in Sub-Saharan Africa: “The strategy has helped to formalise the institution’s approach to an existing area of business that is expected to contribute, firstly, to an increased share of finance to the agricultural, livestock and fisheries sector within the institution’s overall loan portfolio, and secondly, to an increase in the institution’s share of overall credit provided to the selected value chains targeted in the strategy.”

CERTAF’s input was based on several factors. John summarises these as being:

a rigorous analysis of regional agricultural markets to identify key value chains to be targeted by the institution;
an in-depth engagement with key actors to achieve a rigorous understanding of these value chains;
effective collaboration with the institution at a senior management level throughout the technical assistance support.

CERTAF is now supporting the implementation of the agricultural financing strategy.

Environmental, social and governance aspects have also been considered in each of the CERTAF needs assessments of its partner financial institutions. In two instances, support for the development of an environmental and social management system (ESMS) has been identified as a priority area for technical assistance support.

“International financial institutions often provide lines of credit that are conditional on an environmental and social management system that meets international standards,” John says. This is the case with one of the financial institutions CERTAF is working with, a specialist property finance institution, where CERTAF is providing advisory support for the development of an ESMS-compliant high-level risk management framework.

Looking ahead

As things stand, CERTAF is poised to achieve its target of successfully providing customised technical assistance to its seven partner financial institutions, with the possibility of further extension.

“Activities are moving forward well with a number of bespoke technical assistance actions being implemented, with more to come through an evolving pipeline,” says John. “PROPARCO has been very supportive of the initial iterations and responsive to make sure CERTAF experts are active with their clients.”

“It’s probably a bit early to envisage future developments, but probably this will involve more provision of technical assistance to our target financial institutions and a proactive approach to dissemination of best practices,” he adds.

Anyone interested in further CERTAF developments can follow its progress through publications on the PROPARCO website. These include a CERTAF factsheet, which provides details of the financial institutions that the facility is working with.

CERTAF Fact Sheet

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