SECTORS

FIRST recognizes the need to learn from its projects, identify good practices that are replicable, and disseminate findings.

FIRST conducts a study of its completed projects by sector, and publishes results on an ongoing basis as more sectors or areas of involvement are covered.


Financial Inclusion

FIRST has funded some 50 access-to-finance TA projects for a total of about US$12 million. FIRST’s efforts support the underserved and financially excluded through TA projects aimed at expanding access to financial services for low-income households and for SMEs, strengthening consumer protection, and building essential financial infrastructure. Projects span the financial spectrum—banking, microfinance, rural cooperatives, housing finance, micro-insurance,Learn more... remittances, consumer protection, secured lending, pensions, payment systems, and credit bureaus. Projects cover many dimensions of access issues, ranging from developing legal, regulatory, and supervisory frameworks to supporting product development, innovation, and strategy building.Hide...

 

Latest projects in this sector

India: Expanding Housing Finance Market to Lower-Middle Urban And Rural Income Segments

Kazakhstan: Reinsurance Regulation Click to view video

Peru: Factoring Scheme for Micro and Small Enterprises

Indonesia: Expanding Access to Islamic Finance for SMEs

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Banking

In most developing countries, the banking sector is substantially the largest component of the financial sector, and in almost all economies (developed or not) it is the prime driver of financial intermediation. Helping to lay the basis for banking stability and development of related infrastructure, to widen access to finance, has been a key factor in FIRST’s assistance. FIRST’s Charter limits its support in working with individual commercial banks, whether state-owned or not, which largely means that FIRST works with and through central banks. Learn more...

Banks play a major role in mobilizing savings and then using these funds to make loans to companies and individuals. Both funding and lending may also have an international dimension in, for example, trade finance and foreign exchange. Regulators, usually central banks, regulate and supervise banks to ensure that savings, including those in small amounts from individuals, are protected against excessive risk on the asset side and trading side of banks’ balance sheets and to ensure financial stability for the economy as a whole, even where smaller depositors are protected by deposit insurance schemes. Regulators set rules for capital ratios, risk-weighting of assets for capital adequacy assessment, foreign exchange exposure limits, interest rate exposures, asset and liability maturity matching, single borrower limits, connected lending, large exposures, market risks, licensing requirements, management structures and internal controls, corporate governance, accounting standards, liquidity ratios, management qualifications, disclosure rules for financial statements and terms for deposits, financial reporting, amongst others. Most of these regulations have been based on the Basel Core Principles I and II. Further revisions to the Basel Core Principles are likely in the wake of the recent global financial crisis especially to strengthen off-balance sheet activities involving securitization, derivatives trading, credit default swaps. Regulators seek to ensure that banks act prudently within the regulations, by regular off-site analysis of financial returns submitted to them by the banks (monthly or quarterly) and by periodic on-site inspections. Regulator supervisory staff therefore needs to be well-trained in all aspects of bank operations. Analysis techniques may be elaborated to develop early warning signals on banking risks. Regulators need to develop contingency plans for effective and rapid action to deal with potential bank failures and perhaps differentiate these action plans as between banks whose failure could endanger the entire banking system from those that do not.  

In the past 20 years, banking has been probably the main area of focus for technical assistance to developing countries from multi-lateral development banks and bi-lateral donors such as USAID, starting with the more developed countries; the focus has been on strengthening the regulation and supervision of the sector. FIRST has therefore focused less on capacity building across the board and more on narrower topics such as payments systems, credit information systems and in strengthening supervisory capacity in some of the lesser developed countries. Hide...

 

Latest projects in this sector

Bosnia and Herzegovina: Protecting consumers by improving Bosnia and Herzegovinas (BiH) legal framework in banking and microfinance sectors

West Bank and Gaza: Promoting financial stability through the establishment of a Deposit Insurance Scheme

Azerbaijan: Systemic Risk Response Framework Click to view video

Latin America: Strenghtening and Harmonizing Credit Reporting Systems

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Crisis Preparedness

FIRST Initiative’s Crisis Preparedness Program was launched in September 2008 to support client countries in their efforts to improve legal, policy and institutional arrangements and general capacity to deal with financial crisis. The program has evolved to include a number of related activities, listed below, so that projects can be tailored to more specific country needs.  The program’s main impact is to increase country’s institutional capacity to deal with financial crises effectively and timely, and thus reduce the fiscal, economic and social costs of the crises. Learn more...

A recent study claims that “The average fiscal cost [of financial crises was about 15% of GDP. Although this average includes some small and emerging economies, the fiscal cost is equally high among industrialized economies - at 15% of GDP on average. […] A key driver of this variation in ultimate fiscal costs is the effectiveness and timeliness with which governments act to resolve the crisis, which was in large part determined by the state of preparedness. The economic cost of no action can be enormous.” 

Crisis Preparedness product lines

Contingency Planning: Strengthening contingency plans involves assisting national supervisory authorities, central banks, resolution authorities (including deposit insurers) and/or finance ministries in developing a sound basis for problem response and crisis management through the design of, or improvement in, contingency plans and their underlying legal, policy and institutional frameworks.

Crisis Simulation Exercises (CSEs): CSEs allow participants to experience first-hand realistic crisis scenarios--including systemic crises--and are designed to identify weaknesses and gaps in existing laws, policies, and procedures. Regular use of CSEs allows authorities to strengthen their capacities to deal with financial distress, to practice implementation of contingency plans, and to ensure that top officials are up-to-date on the game plan. 

Early Warning and Prompt Corrective Action: This type of TA supports supervisory authorities in putting in place processes to identify problems early-on, and to act on managements and boards to correct problems before they threaten the bank and its depositors.  FIRST provides similar support to supervisors of other types of financial institutions such as life insurance companies.

Problem and Failing Bank Resolution: This type of TA supports strengthening arrangements for formal supervisory measures (such as official warnings and cease and desist orders), for removal of ineffective managers or board members, and for bank closure or imposition of conservatorships and other forms of government intervention to avoid closure.  This support can also involve putting in place or strengthening depositor and investor protection regimes.

Financial Analysis, Projection and Least Cost Test Capacity:This is a tool developed by the WB Staff which is capable of handling a wide-range of analytical tasks to support routine, forward-looking supervision, effecting prompt corrective action, and in evaluating different failure resolution alternatives.

FIRST can package these and complementary forms of TA to suit specific client needs and interests.  Often these products constitute a routine follow-up activity to an FSAP where it has identified apparent weaknesses in the authorities’ capacity. Hide...

 

Latest projects in this sector

Nepal: Strengthening Financial Crisis Contingency Plans

Colombia: Improving Crisis Preparedness by mending inadequacies in the legal framework

Zambia: Developing and Strengthening Contingency Planning

Morocco: Crisis-Preparedness

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Insurance

Strong, growing, well-regulated insurance sector contributes substantially to the growth, size, stability and diversity of the financial sector, and has, in many cases, a positive impact on poverty reduction.

In the past 25 years or so most technical assistance to the financial sector of developing countries has focused, quite rightly, on the banking sector. This tends to account for over 90% of the entire financial sector in early stage development.Learn more... Especially in Eastern Europe and former Soviet countries, the challenge was to transition from a command driven banking system, where banks were simply a tool of a centrally planned economy, to a risk-driven private sector oriented system. Understandably other potentially important pillars of the financial sector, such as insurance, were given a lower priority.

In the past decade, insurance has risen up the list of priorities. It is, and should be, in most instances the next development leg towards a sophisticated and diversified financial sector. Many financial conglomerates have established insurance subsidiaries alongside their banks.

FIRST’s engagement with regulators to strengthen their regulatory and supervisory capacity, including assistance with improving regulations and amending the legal and regulatory framework, was productive in almost all of the projects where this was the focus of the technical assistance.

FIRST continues to be ready to support the strengthening of regulation and supervisory capacity for private pension schemes managed by life insurance companies. This area may offer retirement savings products for small savers and contributes to development of the financial sector: widening the product base for insurance companies and potentially bringing investment demand and greater liquidity to local capital markets. Hide...

 

Latest projects in this sector

Albania: Bringing insurance supervision closer to European standards by moving to risk based approach

Kazakhstan: Reinsurance Regulation Click to view video

Chile: Roadmap for Solvency Control in Insurance

India: Development of Crop Insurance

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Pensions

FIRST has engaged in funding technical assistance (TA) for pensions sector it may contribute substantially to the growth, size and diversity of the financial sector, and in many cases, positively impact poverty reduction. Learn more...

FIRST is not suited for providing the longer term TA required for helping develop public sector pension reform strategies and or social protection pension reforms (safety net pensions for all retired citizens) even though the latter may have a substantial impact on poverty reduction, for the following reasons: i) pension reform at the unfunded public sector level is unlikely to have any significant impact on development of the financial sector. Unlike funded pension schemes (private or public) which will require investment management, development of prudent investment rules and growing and often substantial funds to invest in capital markets (both domestic and foreign); ii) pension reform at the social protection level, usually substantially unfunded, and extended either for public sector workers or even across a larger profile of the population at a minimal social protection level, tends to be highly political, highly complex to negotiate and often requires a long period of time for reform implementation; and, iii) such unfunded DB schemes require regular actuarial assessments and the development of financial modeling skills, with built in actuarial software: this involves considerable investment in IT (which does not fit with FIRST’s Charter for eligible TA support) and considerable training of regulator staff if they are to build their own in-house capacity.

FIRST continues to be ready to support the strengthening of regulation and supervisory capacity for funded and private pension schemes as well as strategy for widening the private funded pension sector and collective investment schemes. Both these areas offer potential savings products for small savers and contribute to development of the financial sector: widening the product base for insurance companies (often managing pension funds), for investment managers, and potentially bringing investment demand and greater liquidity to local capital markets. Hide...

 

Latest projects in this sector

Chile: Strengthening Regulation of Pension Funds

Colombia: Developing Supervisory and Regulatory Framework for Collective Investment Schemes

Malawi: Strenghtneing NBFI Framework and Advice on Pension Reform

Uganda: Support for the Implementation of Collective Investment Schemes

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Capital Markets

FIRST has thus far provided approximately $11 million in technical assistance for projects in capital markets sector. Most projects aimed to strengthen regulation and supervision of capital markets, while some were designed to promote market expansion and product development, such as bond market development in Azerbaijan, the second tier market development in Mauritius, and provision of strategic guidance for market development in other countries.

FIRST has also engaged with projects in other parts of the financial sector that will impact on capital market development: e.g. assistance to launch collective investment schemes; pension reforms and the framework for private pensions; and, expansion of the insurance sector. These projects, which have been summarized elsewhere, help to build the institutional investor base that is a major source of demand for investment product issued and traded through capital markets. 

Development of a country’s capital market can be seen as an important step in deepening the financial sector and extending access to longer term finance (bonds and equity) for private sector and public sector business. However attempts to kick start this by simply providing market infrastructures such as stock exchanges, trading platforms and efficient registration and settlement systems are not sufficient. This approach was tried many times following mass voucher privatizations in former Soviet bloc countries and elsewhere in the world without much success, if other basic pre-conditions were lacking. Some of these pre-conditions include the structure of the economy itself (diversity, size, savings levels, poverty levels, foreign direct investment); some conditions include the structure of the financial sector (is there an institutional investor base including insurance, pensions and mutual funds that need investment product); is there an adequate regulatory environment to protect investors from abuse.

Donors need to target the funding of technical assistance to take account of the stage of economic and financial sector development in a particular country or region. Often such technical assistance will target some of the building blocks needed to satisfy some of the pre-conditions for capital market growth: regulatory infrastructure; product development; market awareness; regional harmonization and so on.

 

Latest projects in this sector

Vietnam: Stabilizing investments funds through better regulation and supervision

Peru: Factoring Scheme for Micro and Small Enterprises

Azerbaijan: Capital Market Development Plan

Azerbaijan: Development of Non-bank Corporate Bond Market

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Other NBFIs

Financial Architecture

FIRST’s clients have exhibited a high demand for financial infrastructure projects – Supervisory Structure, Accounting and Auditing, Credit Information Beaus, and Collateral Registries.

 

Latest projects in this sector

Malawi : ROSC Accounting and Auditing Follow-up/ developing a country action plan

Georgia: strengthening financial sector supervision

Latin America: Strenghtening and Harmonizing Credit Reporting Systems

East Caribbean: Strenghtening Credit Union Regulation and Supervision

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Multisector/Others

Multisector/Other projects cover the following areas: Financial System Development Strategy (FSDS), Anti-Money laundering and Combating Financing of Terrorism (AML/CFT), Corporate Governance, Insolvency Regimes, and Financial System Reform and Policy.

 

 

Latest projects in this sector

Malawi: Financial Sector Development Strategy

Rwanda: Financial Sector Development Program Click to view video

Tajikistan: Post-FSAP Financial Sector Legal and Regulatory Reforms and Strategy Development

 

 

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