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Financial system development
Fundamental for sound economies
The overarching goal of KfW Development Bank is to promote sustainable, pro-poor financial systems. In addition to contributing to greater economic growth, functioning financial systems in developing and emerging countries play a major role in achieving development goals in a myriad of ways. A well-functioning financial system is one of the key cornerstones of an economy. Financial institutions mobilise resources for investments, which are paramount for sustainable growth. They also ensure non-cash payments can be processed swiftly and safely. To promote the sustainable development of financial systems in its partner countries, KfW concentrates on three areas by employing both classic and innovative financing tools: in addition to the micro level which concerns strengthening individual financial institutions, KfW carries out projects on the meso and macro level to stabilise the macro-economic environment. In doing so, the focus is primarily on four areas: micro-financing of micro enterprises, agricultural and environmental financing and Responsible Finance.
Micro-finance projects produce many beneficial outcomes. They create income and employment through financial services for people on low incomes who would otherwise be denied access to savings products, loans or other financial products. Micro-finance projects open up new opportunities for women in particular, and in doing so, increase their social status. Additionally, projects in the area of micro-finance strengthen the financial sector itself. By supporting micro-finance institutions a greater number of people can be reached and a broader range of products featuring tailored financial services such as micro-loans, insurance or savings products can be offered. The financial sector thus fulfils a vital function in converting savings into loans (its "resource mobilisation and intermediation function").
KfW Development Bank, which has promoted the micro-finance sector around the world for many years, wants to help create more sustainable micro-finance markets. In doing so, KfW particularly focuses on supporting institutions which offer varied, financial services tailored to meet the needs of customers, and which act in a fair and transparent manner (Responsible Finance), above and beyond purely extending credit.
The following conditions must be met in order for micro-finance institutions to actually fulfil their intended function: the basis for refinancing must be expanded, savings accounts must be set up, the local capital markets must be built up, loans must be issued in a way that is responsible and transparent, finance must be offered in local currencies and the equity base must be enlarged. These are precisely the areas that KfW Development Bank focuses on in its micro-finance projects. KfW is one of the biggest providers of micro-finance in the world with a portfolio of EUR 1.7 billion, more than half of which is from its own funds.
Even today, more than 840 million people suffer from acute hunger worldwide. Over a billion people are chronically malnourished. According to the United Nation's Food and Agriculture Organization, FAO, around 70 % more food needs to be produced by 2050, to feed the world's growing population. Sustainable economic development and promoting agribusiness can contribute to providing world nutrition in a manner that uses resources sparingly and is viable in the long term. Agricultural financing links both these areas and indirectly contributes to increasing agricultural production.
This is why KfW Development Bank places special emphasis on improving the range of financial services on offer, for instance loans and savings products for small and medium-sized enterprises in the agricultural sector. The goal is to promote micro finance institutions, banks or credit unions, so that they can develop and provide suitable financial services for agricultural companies and those living in rural areas.
A special focus is on financing that arises along value chains, because in this way risks can be distributed and monitored more efficiently. In order to achieve this, financial institutions need to be very aware of the financing requirements and risks of the agricultural sector. It is also important to shape the agricultural credit business in a responsible manner. To this end, technical capacities need to be strengthened and financial institutions to be provided with loans and equity capital.
Responsible Finance is the guiding principle of KfW's commitment in the area of financial system development. As one of the world's largest investors in the area of micro-finance, we bear a special responsibility for ensuring that financial institutions deal with their customers fairly and respectfully.
In order to promote the principles of Responsible Finance and ensure they are complied with over the long term, we enter into dialogue with supervisory authorities in our partner countries, regularly hold discussions with the donor community and support initiatives such as the SMART Campaign of the Consultative Group to Assist the Poor. The goal of this initiative is to establish precisely such principles in microbanks as a matter of course.
These principles are anchored in every phase of the project cycle at KfW. A thorough analysis of the underlying conditions in the financial sector is carried out at the start of each project. This measure aims at recognising tendencies towards indebtedness and unhealthy competition at an early stage, in order to counteract them with suitable project approaches. We work with financial institutions that pursue a "double bottom line" strategy – i.e. they pursue the dual goal of financial sustainability and social impacts.
Additionally, we specifically support our partners in implementing the principles of Responsible Finance. This also includes assisting them in extending their product range in order to motivate customers to save, for instance with appropriate saving products. Complying with the principles of Responsible Finance is contractually agreed on with all partners and also monitored. Above and beyond protecting customers, we motivate the banks that we finance to set goals and strategies which are socially compatible (Social Performance Management).
Climate change is one of the greatest challenges of our time. It is therefore of increasing importance for industry, as well as emerging and developing countries to make fundamental adjustments and pursue an inclusive, resource-efficient and low carbon path to development. The financial sector plays a significant role on the path to sustainable development in the area of "Green Finance".
"Green Finance" is an important approach of development policy which strives for ecological economic growth in partner countries. It supports the transition to a sustainable economy. The way to achieve this goal is through better general conditions for investments, and by providing additional financing with a clear focus on renewable energy, energy efficiency and environmentally friendly technologies.
Currently, KfW is promoting this green transformation, primarily via the financial markets in developing countries. For example, it provides credit lines via national development banks, which then offer low-interest loans to encourage consumers to purchase environmentally friendly products. These could be domestic appliances such as refrigerators in Mexico, or energy efficient new apartments in India. The aim of this is to encourage greater sustainability via the financial market. At the same time, KfW is participating in the direct reform of financial systems in its partner countries, for instance, by strengthening local financial institutions and promoting innovative financial services. Yet ultimately, KfW's goal is always to employ its financial instruments so that they boost and accelerate the transformation of the respective economy.
FC Fund finance is defined by KfW Development Bank as the promotion of developing countries and emerging economies by participating in investment companies or Funding thereof. The Funds that are promoted by the Federal Ministry for Economic Cooperation and Development and KfW Development Bank within the scope of the Financial Cooperation (FC) finance measures that are developmentally soand and profitable in developing countries. They also report regularly about the impact of these measures. The Funds in question are impact investment Funds, i.e. the Funds simultaneously pursue development, climate and environmental goals in developing countries and emerging economies on the one hand and financial goals on the other. These Funds are legally independent entities. The resources of various investors are used according to agreed criteria. Specialist Fund managers are appointed for this purpose.
Each Fund is unique and has specific characteristics (legal form, structured/non-structured liabilities and shareholders' equity, financing tools, investors, target markets, maturities, investment Fund's headquarters, etc.). Some Funds have the option to finance training and advisory measures. Many of the Funds are structured, most according to Luxembourg law: public equity tranches act as a kind of risk shield, by offering a risk buffer to protect more risk-averse investors. The public resources in many of the Funds mobilise private investors, offering them the opportunity to buy Fund notes or Fund shares issued for development and climate policy purposes. Even now, numerous private investors, family offices, pension Funds, philanthropists, international and German charitable trusts are investing in FC-promoted impact investment Funds.The financing requirements of the individual Funds vary over time. The respective Fund managers are responsible for the sale of unlisted notes. In addition, financial intermediaries place some of these Funds' notes with their clients.
Investment Funds that are promoted by a KfW participation are listed below in alphabetical order:
| Aavishkar II-Fonds Promotional focus: Social enterprises | Target region: India Established: 2011 Website: www.aavishkaar.in |
| Aavishkaar Frontier Fund (AFF) Promotional focus: Equity capital for social enterprises | Target region: Asia, e.g. Bangladesh, Indonesia, Pakistan and Sri Lanka Established: 2015 Website: www.aavishkaar.in |
| Africa Agriculture and Trade Investment Fund (AATIF) Promotional focus Financial services and access to markets for enterprises and smallholders in rural areas of Africa | Target region: Sub-Saharan Africa Established: 2011 Website: www.aatif.lu |
| African Local Currency Bond Fund (ALCB Fund) Promotional focus: Strengthening and developing local bond markets | Target region: Africa Established: 2012 Website: www.alcbFund.com |
| African Risk Capacity (ARC) Promotional focus: Extreme weather insurance | Target region: Africa Established: 2014 Website: www.africanriskcapacity.org |
| Africinvest Financial Sector Fund limited LLC (AFS) Promotional focus: Financing of micro, small and medium-sized enterprises | Target region: Africa, mainly Sub-Saharan Africa Established: 2007 Website: www.africinvest.com/portfolio/companies (Fund manager) |
| Balkan Financial Equity Fund (BT) Promotional focus: Establishing efficient, sustainable financial institutions | Target region: Balkan States (Kroatien, Bosnia and Herzegovina, Serbia, Montenegro, Macedonia, Slovenia, Bulgaria, Albania, Kosovo, Rumania and Moldova), Turkey and Ukraine Established: 2005 Website: / |
| Climate Insurance Fund (CIF) Promotional focus: Insurance and reinsurance that cover the climate risks | Target region: Development countries, e.g. Burkina Faso, Côte d‘Ivoire, Ecuador, Mali, Mongolia, Paraguay, Senegal Established: 2015 Website: www.climateinsuranceFund.com |
| DWM Inclusive Finance Equity Fund (Unterfonds des DWM Funds S.C.A) Promotional focus: Microfinance institutions | Target region: Latin America, Asia Established: 2013 Website: www.dwmarkets.com (Fund manager) |
| eco.business-Fonds Promotional focus: Investments by SMEs in areas relevant to nature conservation to maintain biodiversity in ecologically significant natural landscapes | Target region: Latin America and the Caribbean Established: 2014 Website: www.ecobusiness.Fund |
| Enterprise Innovation Fund (ENIF) Promotional focus: High-growth and innovative enterprises | Target region: South East Europe Established: 2015 Website: www.wbedif.eu/about-wb-edif/enterprise-innovation-Fund-enif/ |
| European Fund for Southeast Europe (EFSE) Promotional focus: Lending to micro and small enterprises, as well as to private households, for home renovation measures through local financial institutions | Target region: South East Europe, Turkey, Eastern European neighbors Established: 2005 Website: www.efse.lu |
| Fairtrade Access Fund Promotional focus: Providing financing and advice to cooperatives / associations of smallholders and agricultural workers | Target region: Latin America, Africa, in the future also Asia Established: 2012 Website: www.incofin.com/en/Fund/fairtrade-access-Fund (Fund manager) |
| Global Climate Partnership Fund (GCPF) Promotional focus: Financing investments in renewable energies and energy efficiency largely through the financial sector | Target region: Development countries and emerging economies Established: 2009 Website: www.gcpf.lu |
| Global Health Investment Fund II (GHIF II) Promotional focus: Development of healthcare products to combat diseases associated with poverty and improving reproductive health as well as child and maternal health | Target region: Development countries and emerging economies Established: 2013 Website: www.ghif.com |
| Goodwell West Africa Microfinance Development Company Promotional focus: Microfinance institutions | Target region: Nigeria and Ghana Established: 2009 Website: www.goodwell.nl (Fund manager) |
| Green for Growth Fund (GGF) Promotional focus: Energy efficiency and renewable energy | Target region: South East Europe, Turkey, Middle East, North Africa Established: 2009 Website: www.ggf.lu |
| Grofin SGB Fund Promotional focus Newly established and high-growth SMEs | Target region: Subsaharan Africa Established: 2015 Website: www.grofin.com (Fund manager) |
| Higher Education Finance Fund (HEFF) Promotional focus: Education loans to talented young people from low-income classes through microfinance institutions | Target region: Pilot countries in Latin America: Bolivia, Costa Rica, Peru, Dominican Republic, Guatemala, Honduras, Paraguay Established: 2011 Website: www.heff-education.com |
| Infrastructure Crisis Facility Promotional focus: Private infrastructure investment | Target region: Development countries and emerging economies Established: 2009 Website: http://cordiantcap.com/investment-program/icf-debt-pool/ (Fund manager) |
| Lending for African Farming (LAFCo) Promotional focus: Working capital (net working capital) of smaller and medium-sized agricultural enterprises promotion of local value chains and increasing food production | Target region: Africa Established: 2015 Website: www.lendingforafricanfarming.com |
| LeapFrog Financial Inclusion Fund II Promotional focus: Micro insurance for the poor (life, health, natural disaster, crop failure insurances) | Target region: Asia, Subsaharan Africa, Latin America Established: 2009 Website: www.leapfroginvest.com |
| Microfinance Enhancement Facility (MEF) Promotional focus: Micro financial institutions | Target region: Development countries Established 2009 Website: www.mef-Fund.com |
| Microfinance Initiative for Asia (MIFA Debt Fund) Promotional focus: Funding of microfinance institutions, part of the Fund: financing of domestic energy efficiency systems via microfinance institutions | Target region: Asia Established: 2012 Website: www.blueorchard.com/investment-solutions/customized-mandates/mifa (Fund manager) |
| Municipal Infrastructure Development Fund (MIDF) Promotional focus: Public infrastructure, e.g. water supply and disposal, district heating, waste disposal, public local transport, energy efficiency in buildings | Target region: Albania, Bosnia and Herzegovina, Kosovo, Macedonia, Montenegro and Serbia Established: 2012 Website: www.midf.lu |
| PME Croissance (PMEC), Morocco Promotional focus: Financing of SMEs | Target region: Morocco Established: 2012 Website: http://www.africinvest.com/portfolio/companies (Fund manager) |
| Progression Eastern Africa Microfinance Equity Funds (PEAMEF) Promotional focus: Microfinance institutions | Target region: East Africa Established: 2011 Website: http://www.progressioncapitalafrica.com (Fund manager) |
| Regional Education Finance Fund for Africa (REFFA) Promotional focus: Education loans through local financial institutions | Target region: Africa Established 2012 Website: www.reffa.org |
| Regional investment Funds for micro, small and medium-sized enterprises in Africa (REGMIFA) Promotional focus Financial services for micro, small and medium-sized enterprises through microfinance institutions | Target region: Subsaharan Africa Established: 2010 Website: www.regmifa.com |
| responsAbility Participations AG Promotional focus: Long-term participation in advanced microfinance institutions and small business banks | Target region: Development countries and emerging economies Established: 2012 Website: www.responsability.com (Fund manager) |
| Rural Impulse Fund II Promotional focus: Financial services in rural areas through Funding of microfinance institutions | Target region: Development countries Established: 2010 Website: www.incofin.com/en/Fund/rural-impulse-Fund-ii (Fund manager) |
| SANAD Promotional focus: Financial services for micro, small and medium-sized enterprises employment promotion especially for young people (SANAD: Arabic word for support) | Target region: Middle East, North Africa Established 2011 Website: www.sanad.lu |
| Sarva Capital LLC (formerly Lok Capital Microfinance Fund II) Promotional focus: Microfinance institutions, health, education | Target region: India Established: 2010 Website: www.lokcapital.com/Funds |
| ShoreCap II Limited Promotional focus: Microfinance institutions and financing of smaller enterprises via financial institutions | Target region: Africa and Asia Established: 2009 Website: www.equatorcap.net/about (Fund manager) |
| The Currency Exchange Fund N.V. (TCX) Promotional focus: Currency hedging in "exotic" currencies, for energy investments in Africa, among other things | Target region: Development countries Established: 2009 Website: www.tcxFund.com |
| TunInvest Croissance / SME investment Fund Tunisia Promotional focus: Financial institutions / financial services for SMEs | Target region: Tunisia Established: 2013 Website: www.africinvest.com/portfolio/companies (Fund manager) |
| Women's World Banking Capital Partners, L.P. Fund Promotional focus: Microfinance institutions for women | Target region: Development countries Established: 2012 Website: https://www.womensworldbanking.org/about-us/womens-world-banking-capital-partners (Fund manager) |
You can download the list above here(PDF, 265 KB, non-accessible).
