KfW
KfW
October 2002
Executive Summary
A team comprising Anne Clerc of AFD, David Ferrand of DFID, and Syed Hashemi and Alexia Latortue of CGAP conducted a Donor Peer Review of Kreditanstalt für Wiederaufbau (KfW) in Frankfurt from 14-18 October, 2002. The review is part of a 20-agency initiative launched by UK Secretary of State Clare Short and CGAP to concretely tackle aid effectiveness by using microfinance as a test case.
The Peer Review focused on the internal procedures, practices and processes of KfW to identify the success factors and constraints that influence the effectiveness of the agency’s microfinance operations. The financial sector policy group within the Secretariat of International Credit provided the team with an orientation to the entire German development cooperation which, under the supervision and guidance of BMZ, includes GTZ, DEG, and KfW. The team met with 40 persons from throughout KfW’s financial cooperation arm, DEG, GTZ, and BMZ. The team briefed Wolfgang Kroh, member of the Board of Managing Directors of KfW, and other senior managers and staff on 18 October.
The Peer Review’s visit was timely, given the impending implementation of KfW’s reorganization in January 2003. The team hopes that this letter to management will contribute specific ideas of how KfW can reach the stated objectives of its re-organization: increasing sector know-how; overcoming the gap between sector policy development and implementation; and, promoting the sharing of learning, new instruments and innovation across regions.
This letter outlines KfW’s strengths and challenges, and presents a number of specific recommendations for improving quality and effectiveness. A matrix at the end of the letter provides a summary of the key findings and recommendations organized around six strategic areas. The Peer Review team’s recommendations fall into six areas:
- Achieve financial systems development (FSD) vision. KfW should further develop the operational definition of what FSD means, its comparative advantage in FSD work, and how it can best collaborate with other donors to develop financial systems for the poor.
- Ensure the long-term effectiveness and development impact of the greenfield strategy. KfW should think systematically about exit strategies from the very beginning and proactively address the issues of institutional capacity building and governance of its partners.
- Consider expansion in Africa and Asia with caution. KfW should define its actual and potential comparative advantage in working on microfinance in Africa and Asia before making decisions on whether and how to expand in these regions.
- Optimize the new structure for improving quality. KfW should build incentives, create a quality at entry committee, collect global portfolio data in an automated central database, preserve program knowledge, and maximize the use of local offices.
- Address financial implications of supporting microfinance. KfW should obtain greater transparency of the costs of microfinance projects and pursue creative financing mechanisms to reduce aggregate KfW transaction costs.
- Revisit the issue of state guarantees with BMZ. KfW should engage BMZ in discussions on the possibility of waiving the state guarantee requirement for private sector work, thus enhancing KfW’s effectiveness in supporting microfinance.
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