effective instruments for pro-poor finance
TRANSCRIPT
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November 2015
Proven instruments for pro-poor finance
Author nameDateNovember 2015
Showcasing real examples of instruments that can get finance to those who need it most
Effective instruments for pro-poor finance
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November 2015
Proven instruments for pro-poor finance
Why finance for the poor?Build
resilience
Access services
Improve productivity
and add value
Escape poverty
Manage risks
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November 2015
Proven instruments for pro-poor finance
Pro-poor instrumentsFour alternative pro-poor instruments
Grants
Concessional loans
Risk-sharing instruments
Social protection
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November 2015
Proven instruments for pro-poor finance
Grants
• For early development of pro-poor markets o Feasibility researcho Product developmento Reduce upfront costso Incentivise small and medium enterprises
Subsidies Technical assistance
Bundled with loans
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November 2015
Proven instruments for pro-poor finance
Grants: Bangladesh
IDCOL grants for solar home systems• A higher proportion to poor
households
• Conditional payments• Parallel grants to
installation and service organisations
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November 2015
Proven instruments for pro-poor finance
AEPC grants for renewable energy
• Targeted subsidies• Approx. US$68 million in
total • Cover 30–50% of buying
and installing costs
Grants: Nepal
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November 2015
Proven instruments for pro-poor finance
Grants for participating in REDD+
• £900,000 investment package
• Training, equipment and technical assistance
• For local farmers and small-scale entrepreneurs
Grants: Mozambique
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November 2015
Proven instruments for pro-poor finance
Concessional loans
• Unlocks affordable, scaled-up, long-term financeo Grant element softens loan for low-income groupso National banks may also offer credit guarantees
Lower interest rates
Longer repayment times
Lower bars for qualification
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November 2015
Proven instruments for pro-poor finance
Loans: Bangladesh
Central Bank/IDCOL loans• To commercial banks
or microfinance providers…
• …at interest rates of 5% and 6% respectively
• Households pay 9% interest
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November 2015
Proven instruments for pro-poor finance
Loans: Ethiopia
Development Bank of Ethiopia
• To microfinance providers at 6% interest
• 10 year repayment period• Incentive for lending onward to
poor borrowers and rural households
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November 2015
Proven instruments for pro-poor finance
De-risking
• Lower risks of investing in pro-poor projectso Guarantees cover losses if borrowers defaulto Incentivises lending to low-income groups that cannot
provide collateral for loans
Guarantees Lower capital costs
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November 2015
Proven instruments for pro-poor finance
De-risking: Ethiopia
Risk-sharing facility• International Finance
Corporation and International Bank of Ethiopia
• Finance for farmers• Encourages private banks
to engage with SMEs
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November 2015
Proven instruments for pro-poor finance
Social protection
• Only way to reach the poorest of the pooro Recognised as critical by SDGs o Schemes vary widely in shape and sizeo Originally aimed at ending poverty, many now also
target climate resilience and ecosystem management
Cash payments
Food for labour Guaranteed paid work
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November 2015
Proven instruments for pro-poor finance
Safety nets: India
The Mahatma Gandhi National Rural Employment Guarantee Scheme
• Legal right to work• Supports tens of
millions of people with 100 days of paid labour each year
• US$25 billion distributed since 2006
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November 2015
Proven instruments for pro-poor finance
Safety nets: Brazil
The Bolsa Verde programme
• Cash for conserving natural resources
• Reaches more than 69,000 poor families
• US$40 million distributed each year
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November 2015
Proven instruments for pro-poor finance
Safety nets: Ethiopia
The Productive Safety Net Project• Targets 7 million food
insecure people• Offers cash or food for
labour on projects such as tree planting
• Helps people resist shocks, accumulate assets and feed themselves
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Proven instruments for pro-poor finance
Conclusions
• Experience shows it is possible to choose or develop pro-poor financial instruments
• These should be used in different combinations depending on their comparative advantage
• All should be combined with the right set of intermediaries, planning and budgeting systems
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Proven instruments for pro-poor finance
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Contact: Neha Rai [email protected]
This presentation is based on the briefing Beyond loans: instruments to ensure the poor access climate and development finance (http://pubs.iied.org/17318IIED.html )
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