Success message
error message
warn message
Development of a Sustainable Pro-Poor Financial Sector in Sierra Leone
Commissioning Unit: UNCDF
Evaluation Plan: 2008-2009
Evaluation Type: Project
Completion Date: 12/2009
Unit Responsible for providing Management Response: UNCDF
Documents Related to overall Management Response:
 
1. Recommendation: Project SIL/03/C01 (MITAF) has been instrumental in building an inclusive financial sector in Sierra Leone. When the project started in 2004, there were a handful of relief and development agencies providing credit but there was no real microfinance sector. At September, 2009, the 13 partner lending institutions (PLIs) financed by MITAF were serving close to 120,000 throughout the country, meeting project outreach targets. Because it has adhered to and promoted internationally-recognized good practice, MITAF has served as a catalyst for developing not just quantity but quality throughout the sector as a whole. Microfinance is now seen as an integral part of the financial sector in Sierra Leone; strategies to continue to build the microfinance sector are an integral part of the recently approved Financial Sector Development Plan. Nevertheless, the sustainability of project results is questionable. In part this is due to an exceptionally difficult operating environment, but some aspects of project design have contributed to sector-wide challenges, such as an over-supply of microcredit in urban areas and continued significant internal weaknesses in PLIs.
Management Response: [Added: 2010/07/08] [Last Updated: 2010/07/08]

Key Actions:

2. Recommendation: Evaluation Recommendation or Issue 1: Project outreach targets were overly-ambitious and provided conflicting incentives for PLIs and for the technical service provider (TSP). In order to meet increasing outreach and profitability criteria, most PLIs extended operations without sufficient investment in internal structures needed to support their rapid growth and they remain quite weak institutionally. As the TSP was held accountable for achieving results, it faced an inherent tension between encouraging PLIs to expand and helping them build capacity or recognizing when capacity would be surpassed. It is imperative to understand, promote and monitor overall institutional capacity within the providers of microfinance services. When project incentives promote increasing outreach while expecting growing levels of cost-recovery, but the project provides little operational subsidy and does not set clear and measurable expectations about institutional capacity, long-term institutional sustainability is likely to be compromised. In the future, it is recommended that UNCDF: 1) set clear expectations and criteria for overall institutional capacity in the PLIs it finances; 2) ensure that overall institutional capacity is closely monitored and that institutions do not receive continued financing to expand their outreach beyond their demonstrated capacity; 3) de-link a TSP?s remuneration from projected PLI performance targets, particularly outreach targets.
Management Response: [Added: 2010/07/08] [Last Updated: 2010/07/08]

Management Response: In Phase II the above issues will be clearly underlined in the UNCDF prodoc phase II describing our participation to this second phase. UNCDF has shared the concerns with KfW. The second version of the Prodoc drafted by UNCDF has already received comments from partners (KfW, UNDP and Cordaid). The proposals for the tender have been received and are under review.

Key Actions:

Key Action Responsible DueDate Status Comments Documents
1.1. The UNCDF prodoc for phase II of the programme will clearly put emphasis on the fundamental principle of strong institutional capacity, highlighting that outreach targets should not be reached at the expense of the institutional strength of the funded PLI.
[Added: 2010/07/08]
Regional Office Dakar, KfW 2010/06 Completed
1.2 UNCDF has already indicated to KfW that priority should be given to capacity building of PLIs and that on-lending facility should be provided only after careful analysis of absorption capacity by PLIs concerned
[Added: 2010/07/08]
Regional Office Dakar, KfW 2010/06 Completed
1.3 UNCDF has indicated to KfW that the remuneration of the managing firm of the second tier funding structure (Phase II) should not be linked to outreach performance targets in isolation In February 2010: UNCDF clearly shared the above position with KfW (UNCDF has formulated the design of the joint prodoc of MITAF second phase and KfW is in the process of setting up a ?Company limited by guarantee? to manage the multi-donor funding mechanism.
[Added: 2010/07/08] [Last Updated: 2012/04/19]
Regional Office Dakar, KfW 2010/01 Completed TSP recruitment in process. STATUS UPDATE APRIL 2012: The TSP is hired and the CLG (named SAFE) was setting up.
3. Recommendation: Evaluation Recommendation or Issue 2: In addition to promoting rapid growth at the individual PLI level, the project also funded a number of PLIs in a limited market and this push for increasing outreach has contributed to an increasing saturation of urban microcredit markets. The Investment Committee structure enabled each donor to finance the type of institutions it prefers without regard to the microfinance market as a whole. One result has been the proliferation of fairly weak institutions providing financial services to the poor, in a market that likely cannot support most of them in the long term. In future, it is recommended that UNCDF ensure that its financing be market-driven by: 1) basing project objectives and targets on valid and realistic assessments of the absorptive capacity of the market, both at the customer and the service provider level, and of external constraints to the growth of the microfinance sector; 2) monitoring the effect of project funding on growth in outreach so that markets are not over-saturated nor PLI capacity surpassed; 3) requiring all members of an Investment Committee to clearly commit to and abide by the same market-driven vision of the sector and to clear and comprehensive financing criteria.
Management Response: [Added: 2010/07/08]

The above issues were at the core of UNCDF discussion with KfW during the Fall 2009 and confirmed during the face to face meeting in Germany with them in 18 January 2010. Another discussion with IFC resulted in expression of interest from their part in their email dated April 8, 2010 The above issues will be clearly reflected in UNCDF?s prodoc on our contribution to Phase II, to be presented to PAC in June 2010.

Key Actions:

Key Action Responsible DueDate Status Comments Documents
2.1. UNCDF and KfW have agreed during the meeting in January 2010 in Frankfurt to carefully consider the market issue based on a clear analysis and the sector needs UNCDF has approached IFC to explore potential partnership during Phase II to develop a credit reference bureau, in order to address the problem of over-indebtedness. (reply email from IFC dated April 8, 2010). UNCDF will help set up such structure, if feasible, during second Phase
[Added: 2010/07/08]
Regional Office Dakar, KfW 2010/06 Completed
2.2. Provider level: UNCDF has committed to use its funding exclusively (or almost exclusively) to capacity building and institutional strengthening for Phase II.
[Added: 2010/07/08]
Regional Office Dakar, KfW 2010/06 Completed
2.3 By setting up a unified donor funding entity (company limited by guarantee) and a joint investment committee that will review funding proposals prior to the company board meetings, UNCDF and KfW have clearly confirmed their commitment to harmonize donor funding based on the same market driven approach, and will make it a condition for other donors who want to become part of this structure. The funds will be managed by an external fund manager fully accountable. This coordinated approach will ensure that funding is based on realistic assessment of the market absorption capacity, will help monitor effect of project funding on PLI, and will ensure that all donors participating will abide by the same market-driven approach. Those principles were discussed and agreed upon with KfW during our January 2010 meeting with them.
[Added: 2010/07/08]
Regional Office Dakar, KfW 2010/06 Completed
4. Recommendation: Evaluation Recommendation or Issue 3: The project implementation structure did not call for pooling donor funds. Rather, each donor member of the Investment Committee funded and separately contracted with each PLI, creating unwieldy financing mechanisms and contributing to unnecessary and disruptive delays in MFI financing. These arrangements also facilitated the divergence in donors? vision and approaches to building the microfinance sector. In the future, it is recommended that UNCDF: 1) pool all donor funds; 2) delegate investment decisions, contracting and disbursement to a fund manager.
Management Response: [Added: 2010/07/08]

Key Action(s) By March 2010: UNCDF and KfW confirmed during the design of Phase II (Fall 2009) that donor funding would be pooled under the structure of a ?Company limited by guarantee? that will be set up to which UNCDF could not be part of (based on advice from UNDP Legal Office). However, the harmonization mechanism will be through a joint Investment Committee reviewing funding proposals prior to the company?s Board meetings (to which UNCDF will be a member), and through a joint implementation of the decisions managed by a professional TSP preparing and monitoring investments. The TSP will be recruited for that purpose. Call for proposal to recruit the TSP was launched by KfW after consultation of the other donors involved, in March 2010.

Key Actions:

Key Action Responsible DueDate Status Comments Documents
3.1 The UNCDF prodoc Phase II will reflect the above design considerations and donor commitments. The proposals of the tender were received after the pre-qualification phase and are under review
[Added: 2010/07/08]
Regional Office Dakar, KfW 2010/06 Completed
3.2 Call for proposal to recruit professional TSP was launched by KfW
[Added: 2010/07/08] [Last Updated: 2013/05/22]
KfW 2010/03 No Longer Applicable TSP identified after international tendering process; negotiations are ongoing for the contractual aspects. KfW leading the process with the participation of UNCDF also representing UNDP and Cordaid. STATUS UPDATE APRIL 2012:The TSP (AYANI) was selected but its contract is not yet finalized due to some issues between KfW and BSL. STATUS UPDATE MAY 2013: KfW and the Bank of Sierra Leone had not reached consensus on the recruitment of the proposed ITSP. This situation led to the withdrawal of KfW
5. Recommendation: Evaluation Recommendation or Issue 4: Contracting a TSP to be responsible for all project outcomes was unrealistic and created conflicts of interest. The TSP was expected to identify needs and ensure capacity-building for a growing number of PLIs throughout the project, as well as for institutions at the meso and macro levels, in addition to administering the project for donors. Fulfilling these multiple roles exceeds the capacity of one firm and contributed to limited results at the meso and macro levels. More importantly, because the TSP acted as ?financier?, assessing and preparing PLI investments for the donors, while also being responsible for PLI capacity-building, an inherent conflict of interest was created. In the future, it is recommended that UNCDF: 1) ensure that the functions of financing and capacity-building are carried out by different entities; 2) consider supporting the development of a mechanism for the local, potentially sustainable delivery of capacity-building services for the microfinance sector.
Management Response: [Added: 2010/07/08]

Management Response: By February: Consideration to build local expertise for capacity building has been discussed during Phase II formulation. Capacity building will be sub-contracted to international, regional or national partners, whenever possible.

Key Actions:

Key Action Responsible DueDate Status Comments Documents
4..1 the above considerations will be reflected in UNCDF prodoc Phase II to be submitted to PAC
[Added: 2010/07/08]
Regional Office Dakar 2010/06 Completed There will be two windows: non-refinance and refinance managed by separate departments and heads but coordinated by the same TSP
4.2 Support at the macro and meso level will also be structured in parallel to the role of the Company limited by guarantee and in will be reflected as parallel interventions in the UNCDF project document phase II, enabling the TSP to focus on its primary financing role.
[Added: 2010/07/08]
Regional Office Dakar 2010/06 Completed The TSP will act on the three levels but with the delineation of roles and responsibilities between refinance and non-refinance windows

Latest Evaluations

Contact us

1 UN Plaza
DC1-20th Floor
New York, NY 10017
Tel. +1 646 781 4200
Fax. +1 646 781 4213
erc.support@undp.org