Action by KfW Entwicklungsbank

Access to financial services

A man is sitting behind the fruit he is selling.

Without access to financial services poor people cannot harness their self-help potential. Source: KfW Photo Archive / photothek.net

The overarching objective of German Development Cooperation is to promote poverty-oriented and efficient financial systems through KfW Entwicklungsbank. Deepening the financial system, broadening the product range and helping improve the stability of the financial system contributes to creating permanent access to adapted financial services for the currently undersupplied segments of the population in developing and transition countries.

KfW Entwicklungsbank's activities in the financial sector are based on the German Ministry for Economic Cooperation and Development (BMZ) sector concept for financial system development. It provides for a systematic development approach, meaning that the promotional activities target the financial system as a whole in order to influence structures and the overall system.

KfW Entwicklungsbank deploys a whole range of both classic and innovative financing instruments - refinancing lines, guarantees, structured finance, participations, local currency-based services and accompanying basic and advanced training measures. As well as directly supporting financial intermediaries, KfW also establishes deposit guarantee schemes or provides support with the introduction of securitisation. In addition to budget funds from the BMZ, KfW also draws on its own funds (including promotional loans and equity participations).

The Approaches Encompass

  1. downscaling, i.e. introducing and expanding a business segment for micro, small and medium-sized enterprises as well as lower income groups at existing commercial banks
  2. upgrading, i.e. supporting the transformation processes of informal and semi-formal financial intermediaries and their integration into the national financial system
  3. greenfielding, i.e. setting up new financial intermediaries aimed at particular target groups, such as micro-finance institutions
  4. linkage, i.e. linking informal financial intermediaries to the national and international financial market

Today, KfW Entwicklungsbank collaborates with a broad spectrum of local financial institutions in around 70 countries, including micro-banks, commercial banks, refinancing institutions, village savings banks, non-governmental organisations and regional and supra-regional micro-finance funds. Our partners of choice are innovative, client-focused and deposit taking private financial institutions whom we support in developing new customer segments including, for instance, micro and small enterprises, or in developing new financial products.

Large Portfolio

At the end of 2010, the financial sector portfolio had a value of approximately six billion euros, roughly one fifth of it was attributable to the budget funds of the BMZ. Four fifths came from funds raised by KfW itself on the capital market. These funds increase the budget funds manifold, without which we could not sustain this type of activity in the financial sector.

The revolving use of long-term refinancing funds provides Financial Cooperation (FC) with additional leverage. KfW's activities in the financial sector often provide a model for others to follow and, as such, serve as a catalyst for new structures and have a far-reaching impact.

Wide-Ranging Competence

The work of KfW Entwicklungsbank relies heavily on its added value as a bank, namely its specific know-how and instruments, the synergy effects we achieve from drawing on the competence of other parts of KfW Bankengruppe, and its international network. A dedicated team of experts in the Competence Centre Sustainable Economic Development undertake product development, feed KfW's experiences into the international debate and, through in-house training, ensure that a high level of expertise is maintained. Thanks to its experience, KfW Entwicklungsbank is a co-financing partner of choice for bi- and multilateral institutions, and is frequently called upon to take the lead in designing financial sector projects.

Three main lines of approach dominate our work in promoting the financial sector: preserving our excellent international position in micro-finance; expanding structured finance packages which from a development perspective merit deserve further funding, and expanding the green finance schemes. Other strategic and cross-cutting areas include responsible finance, (micro-)insurance, education finance, trade finance, local currency financing and rural finance.

Last updated: July 2011