Assessing Funder Practices: 2018 Emerging Lessons from the Financial Inclusion Navigator Ju n e 2 0 23 E s t el le L a h a ye, A l i c e Negr e, Ba r b a r a S c o l a CONTENT OF THIS PRESENTATION Background and Lesson 3: Analyzing root causes and experience to date............................. 3 key resources…............................... 16 Lesson 1: Impact narratives and Lesson 4: Scaling impact beyond key resources….............................. 10 partners and key resources............. 20 Lesson 2: An inclusive finance focal Lesson 5: Regular portfolio analysis point and key resources…............... 13 and key resources........................... 23 BACKGROUND: HOW CAN THE NAVIGATOR BE HELPFUL? Funders need to reflect on what they do and how they work to maximize their impact As the world and financial systems are in constant flux, 2. How funders work?: Financial Inclusion Navigator funders need to continuously think about and adapt their roles. Reflecting on who is funding what and where can help funders make informed decisions on funding allocation, coordinate with others, and shed light on how to adjust efforts. Looking at how funders work is also essential as it shapes funders’ ability to trigger long lasting impact at scale. CGAP has developed two tools to help CGAP Members reflect on what they do and how they work. 1. What funders do?: CGAP Funder Survey CGAP | ASSESSING FUNDER PRACTICES: EMERGING LESSONS FROM THE FINANCIAL INCLUSION NAVIGATOR 4 The Financial Inclusion Navigator It is a review process FI NAVIGATOR facilitated by CGAP PRIORITIES to help CGAP members Contributing to understand their organizational development goals Implementation Strategic strengths and weaknesses Contributing to Capacity Clarity climate action to advance their financial inclusion priorities. ORGANIZATIONAL Advancing women’s financial inclusion Quality ELEMENTS Learning Assurance Organization It is adapted to different funders strategic and implementation models. Aiming for Accountability transformational change CGAP | ASSESSING FUNDER PRACTICES: EMERGING LESSONS FROM THE FINANCIAL INCLUSION NAVIGATOR 5 Three priorities in review Priority 1: Contributing to development goals Priority 2: Advancing women’s financial inclusion This priority reflects that financial inclusion is not an end in itself but Women still lag behind men in terms of financial inclusion, which contributes to the achievement of development goals such as the hinders women’s economic empowerment and gender equity. The SDGs. Navigator reviews how a funder is equipped to advance women’s financial inclusion. The Navigator reviews how a funder strategically positions financial inclusion relative to its overall objectives and cross-cutting strategies, Priority 3: Aiming for transformational change and how it is equipped to deliver on its strategic commitments. Transformational change refers to change that influences the dynamics In focus: Contributing to climate action in the constantly evolving financial system to contribute to sustained impact beyond the project/investment lifetime. The Navigator looks at Inclusive finance plays an important role in enabling the poor and how a funders organizational practices enable its staff and vulnerable to manage climate risks and adopt more climate-friendly implementers to experiment, adapt and learn from mixed results to and resilient practices. The Navigator reviews how a funder catalyze transformational change beyond their direct partners. strategically positions financial inclusion relative to its climate objectives and how it is equipped to link financial inclusion, and climate goals in its operations. CGAP | A SYSTEMIC APPROACH TO FINANCIAL INCLUSION: TRAINING FOR FUNDERS 6 How can the Navigator be helpful? Benefits to participating funder Benefits to Community • Internal dialogue on effectiveness and • Insights on how different organizations impact in financial inclusion advance financial inclusion priorities and address challenges, contributing to peer • Aligning staff around financial inclusion learning on effective organizational set-ups for advancing financial inclusion and • Exploring links between financial inclusion maximizing impact and strategic priorities and SDGs • Promoting coordination amongst funders to • Concrete recommendations and effectively deal with common challenges discussions with senior management CGAP | ASSESSING FUNDER PRACTICES: EMERGING LESSONS FROM THE FINANCIAL INCLUSION NAVIGATOR 7 AFD Group and Luxembourg’s MFEA piloted the Navigator: What did they say? At a time of important changes within the AFD Group that could have resulted in the dilution of financial The Navigator recommendations on addressing inclusion and threatened to erase hard-earned gains in cross-cutting priorities were helpful. In addition, the inclusion sector, the Navigator was an opportunity to process of constantly asking “but why do we do increase visibility of the topic. that” has led to some in-depth reflections on the implementation of our strategy. - Christine Poursat, AFD - Paul Weber, Luxembourg’s MFEA The Navigator provided me a solid basis to internally address matters that I could not have addressed effectively alone. It was trusted because it analyzed both strengths and weaknesses and empowered us to initiate changes in our institution. -Paul Weber, Luxembourg’s MFEA CGAP | ASSESSING FUNDER PRACTICES: EMERGING LESSONS FROM THE FINANCIAL INCLUSION NAVIGATOR 8 What have we learned so far? Impact narratives elevate inclusive finance as a priority and help staff 1 identify opportunities A focal point for inclusive finance can be a key asset to steer the Are these lessons relevant 2 for all funder? development of the inclusive finance portfolio, even when not in charge directly of designing projects Yes. These findings are relevant for all funders, even though they might imply Systematically analyzing root causes of financial exclusion during project 3 design helps identify entry points for transformational change different ways to take action because each funder is unique. Supporting financial services providers can be even more transformational The Navigator review adapts 4 when funders plan for scaling impact beyond their partners 5 to various strategic and implementation models. Semi-annual portfolio analysis is essential to identifying and responding to 5 lessons learned CGAP | ASSESSING FUNDER PRACTICES: EMERGING LESSONS FROM THE FINANCIAL INCLUSION NAVIGATOR 9 LESSON 1: IMPACT NARRATIVES TO ELEVATE INCLUSIVE FINANCE AND ALIGN Impact narratives elevate inclusive finance as a priority and help staff identify opportunities Review insight How to address? Inclusive finance is an important enabler of multiple Developing impact narratives helps explain these development goals such as combatting climate pathways and align staff around a joint vision. change and achieving gender equality. However, the Making these connections across development One of the Navigator’s pathways from inclusive financial services to priorities more intentionally is important to ensure recommendations (to AFD achieving these goals can be complex. Whereas staff inclusive finance is a priority and projects maximize Group) was to clarify the intersection between FI often understand that advancing inclusive finance their development impact. and broader development can contribute to their priorities, they usually need goals. AFD agreed more guidance to identify concrete project Based on these narratives, staff across different internally to include FI in opportunity. This is especially true for project thematic divisions and with different financial its narrative and its managers who are not financial inclusion experts. inclusion experience can define concrete tracking system, including opportunities to drive impact through inclusive tracking the link between FI and the SDGs. -- AFD finance projects and be more proactive in looking out for potential projects. CGAP | ASSESSING FUNDER PRACTICES: EMERGING LESSONS FROM THE FINANCIAL INCLUSION NAVIGATOR 11 Resources: linking financial inclusion to development goals Linking financial inclusion to SDGs broadly Linking financial inclusion to specific development goals • CGAP research related to how financial inclusion contributes • Digital economy to poor people’s well-being. • Climate • UNSGA report ‘People’s Money: Harnessing Digitalization to • Energy Finance a Sustainable Future’ highlights how digital finance • Water can be harnessed in ways that better align people's money • Education: USAID brief and CGAP slidedeck with their needs, collectively expressed by the SDGs. • Health • SDG Compendium gathers evidence on how digital financial • Fragility-Conflict-Crisis inclusion is stirring speedier progress in achieving the SDGs. Focus on Women’s financial inclusion (WFI) and Women Economic • UNCDF’s Impact Pathways helps illuminate the pathways Empowerment (WEE) which lead from the use of a particular financial service to the benefits which users experience to the potential • WEE Measurement In Financial Inclusion provides guidance for measuring WEE contribution over time to the SDGs. in financial inclusion. • Digital Finance for the Real Economy describes how digital • Financial Solutions for Women in Rural and Agricultural Livelihoods summarizes financial services can contribute to international CGAP research on constraints faced by women in rural and agricultural development across several sectors. livelihoods and the opportunities for service providers and funders to add value to their lives and livelihoods. CGAP | ASSESSING FUNDER PRACTICES: EMERGING LESSONS FROM THE FINANCIAL INCLUSION NAVIGATOR 12 LESSON 2: AN INCLUSIVE FINANCE FOCAL POINT AS A KEY ASSET A focal point for inclusive finance can be a key asset to steer the development of the inclusive finance portfolio Review insights How to address? Multi-dimensional development problems require technical An inclusive finance focal point within an organization serves as experts across thematic divisions working together to design, the central coordinating and expertise hub for a specific thematic manage and monitor projects and investments. However, the area, facilitating communication, collaboration, and strategic typical matrix organizations of development agencies fail to alignment. With a clear mandate , this function is critical to break enable outcome-oriented problem-solving and tend to create silos and steer the development of the inclusive finance portfolio. silos. This role might not involve directly designing projects. Moreover, since inclusive finance is an enabler of development Support from leadership and guidance as to how these focal goals, rather than a standalone objective, inclusive finance points work with other thematic and geographic teams should projects are now often managed by various units across a funder also be in place to ensure these focal points can perform their agency. While this represents opportunities to leverage inclusive role. finance for diverse development outcomes, it poses certain risks. Generalist funder staff (or staff with other sector expertise) might not have the necessary expertise to design and monitor inclusive finance projects/investments. This can lead to missed opportunities or unsustainable projects. CGAP | ASSESSING FUNDER PRACTICES: EMERGING LESSONS FROM THE FINANCIAL INCLUSION NAVIGATOR 14 Resources: role of a focal point Role of the focal point Using backstopping to supplement the focal point role At a minimum, a focal point should: In organizations with limited capacity, the function of a focal point for inclusive • Develop impact narratives and support thematic teams identify finance can be supplemented with an external party such as a consulting firm. This inclusive finance project opportunities backstopping role aims to enhance the effectiveness of programs by providing technical expertise, guidance, and resources to staff and implementing partners. • Clarify project cycles, including quality assurance requirements, for The scope of work for the backstopping function used by funders can vary all inclusive finance projects whether standalone or component depending on the specific requirements and objectives. Some common elements • Provide quality assurance during project design include: • Monitor and analyze the inclusive finance portfolio • Policy guidance: providing policy guidance and aligning projects with national • Extract lessons learned and international development policies and frameworks • Plan and support knowledge sharing and capacity building • Project oversight: providing oversight and guidance throughout the project opportunities for all staff on financial inclusion cycle, and include regular monitoring and evaluation of project activities, Depending on the organizational resources allocated to inclusive reviewing progress reports, and ensuring alignment with the project's objectives finance, the focal point could also: and expected outcomes • Design and mainstream an inclusive finance strategy and action • Capacity building: strengthening the skills and knowledge of staff and plan implementing partners through training and the development of technical • Create and manage an internal community of practice, to connect guidance such as market diagnostic methodology various teams working on financial inclusion • Knowledge sharing and learning: facilitating knowledge sharing and learning • Support the identification of project opportunities. among project stakeholders to exchange best practices, lessons learned, and promote innovation within the project CGAP | ASSESSING FUNDER PRACTICES: EMERGING LESSONS FROM THE FINANCIAL INCLUSION NAVIGATOR 15 LESSON 3: ANALYZING ROOT CAUSES DURING PROJECT DESIGN Analyzing root causes of financial exclusion during project design helps identify entry points for transformational change Review insights How to address? Funder staff realize that transformational Systematically analyzing root causes of financial exclusion during change requires to address deep rooted project design helps identify entry points to transform systems, rather If funders want to go issues, linked to the incentives, relationships than only treating symptoms. For example, given the persisting gaps in beyond closing the gender and capacity that drive the behaviors of the women’s financial inclusion, diagnostics should analyze specific gap, they need to various market actors (clients, providers, constraints women face in accessing and using financial services (e.g., intentionally address gender norms. The first regulators, policy makers). CDD requirements include documents women often lack) as well as step is to understand why the root causes of such constraints (e.g., regulators are not aware of the financial system is not Yet, market diagnostics often stop at women specific issues). Root causes can also be gender norms (e.g., working for women. This describing the status quo and fail to analyze women do not apply for ID documents as their families don’t approve analysis should go beyond why a market functions the way it does and the trip that the application would require). just looking at women’s how that leads to the exclusion of certain behavior, aiming instead to understand what is driving population segments. Root cause diagnostics are not necessarily longer than status quo that behavior as well as the diagnostics, but they require a different set of skills such as political behavior of other market economy analysis, access to good informants, investigation – and actors. The root causes of often highlight the necessity for on-going market monitoring. Requiring market constraints often lie that project proposals are based on such diagnostics strengthens in norms that affect all actors of the financial project designs and quality assurance. Helping staff and implementers system. – CGAP through technical guidance and funding to acquire the necessary skills and conduct such diagnostics is essential. CGAP | ASSESSING FUNDER PRACTICES: EMERGING LESSONS FROM THE FINANCIAL INCLUSION NAVIGATOR 17 Resources: market diagnostic and root causes analysis Market System Mapping Who Does/Who Pays Matrix Keep Asking Why Political Economy Analysis Helps list all core and support Helps analyze the performance of Helps draw hypotheses to explain the Helps identify power and influence functions and rules needed to make each function: who performs it, who performance of the various functions: dynamics, especially useful to transactions happen. pays for it, does it work well? identify deep rooted market dynamics support partner selection and in the relationships, incentives and scale-up strategy. capacity of market actors. How-to guidance: How-to guidance: How-to guidance: How-to guidance: • CGAP, Tool#2: Training Companion • M4P Guide, Chapter 2 on diagnosis of • USAID (2018): Thinking and Working • CGAP Tool#1: Training Companion Politically through applied political for Funders market systems and identifying root for Funders economy analysis causes of problems. • CGAP: Branchless Banking • CGAP, Tool#3: Training Companion for • CGAP, Tool#4: Training Companion Diagnostic Template Funders • USAID’s Digital Ecosystem for Funders • ODI: The Problem Tree Framework • Mercy Corps: Investigating Private Sector Incentives CGAP | ASSESSING FUNDER PRACTICES: EMERGING LESSONS FROM THE FINANCIAL INCLUSION NAVIGATOR 18 Resources: focus on gender norms diagnostics Gender norms in financial inclusion diagnostics Example of asking why women owned businesses are unable to access credit • 5 Why’s: Helps draw hypotheses to explain the performance of the various functions: identify deep rooted market dynamics in the relationships, incentives and capacity of market actors. • FinEquity diagnostic guidance • Examples of gendered social norms diagnostic: Rwanda, Turkey • GIZ gender toolkit includes a section on norms for the scoping phase • Assessment tool for FSPs: help assess how gender power dynamics influence their business activity, developed by Developing World Markets and Criterion Institute Guidance to design programmes that address norms • CGAP guidance to design interventions to address norms that challenge financial inclusion • SDC Guidance note on WFI to ensure that gender issues are taken into account in the design, implementation, monitoring and evaluation of cooperation strategies and projects. • GIZ WFI toolkit which is a “How to Guide” which aims at equipping staff with the necessary knowledge and measures to approach the topic of women’s financial inclusion CGAP | ASSESSING FUNDER PRACTICES: EMERGING LESSONS FROM THE FINANCIAL INCLUSION NAVIGATOR 19 LESSON 4: SCALING IMPACT BEYOND PARTNERS Supporting FSPs can be more transformational when funders plan for scaling impact beyond their partners Review insights How to address? Scale-up strategies are needed to transform systems beyond To address this issue, funders are now transitioning to theories of direct partners. Given the need for straightforward performance change that explain how their interventions are likely to trigger indicators, scale too often refers to the outreach of partner new behaviors at their partner level, and how these in turn lead institutions. Funders do not sufficiently reflect on how their to other actors copying or reacting to these new behaviors, and support to these partners influences the functioning of the overall improving how the financial sector work. Designing financial system overall. While funders often aim for a meaningful template for theories of change, mainstreaming their ‘demonstration effect’ influencing behaviors in the broader use throughout the organization is difficult but much needed. financial system, they do not plan for it in project design nor measure whether it is actually happening. Unfortunately, ideas and new practices usually do not spread spontaneously from pioneers to the broader market. Funders cannot rely on the demonstration effect to reach scale but need to deliberately plan and sometimes take action for change to spread. CGAP | ASSESSING FUNDER PRACTICES: EMERGING LESSONS FROM THE FINANCIAL INCLUSION NAVIGATOR 21 21 Resources: planning for scaling impact Who Will Do/Who Will Pay Matrix AAER Framework Theory of Change (ToC) Helps define a vision of how the market system Helps articulate expected changes to implement Using a 5-level ToC forces project teams to be should perform. this vision, at the partner level and beyond. explicit about changes that need to happen to create development outcomes at scale. It builds on the AAER framework. DEVELOPMENT OUTCOME How-to guidance: Inclusive financial system outcomes • CGAP, Tool#6: Training Companion for Systemic change Funders outcomes • CGAP, Module 3: Adapt Expand Measuring Market Development How-to guidance: Adopt Respond Handbook How-to guidance: • CGAP Tool#5: Training Companion for Funders • CGAP, Tool#7: Training Companion for Funders Intermediate outcomes Interventions CGAP | ASSESSING FUNDER PRACTICES: EMERGING LESSONS FROM THE FINANCIAL INCLUSION NAVIGATOR 22 22 LESSON 5: REGULAR PORTFOLIO ANALYSIS Semi-annual portfolio analysis is essential to identifying and responding to lessons learned Review insights How to address? Individual projects are monitored, evaluated, and progress has Funder staff need time and data to do take a step back been made towards integrating lessons learned in the design of to assess, learn and adapt as necessary to implement The importance of learning new projects. At the portfolio level, performance is monitored with projects in complex, fast-changing environments. by doing: “problems are efforts often focused on what's necessary from an accountability Things often do not go as planned. only really understood after rather than a learning perspective. solutions are developed” – Performance should be monitored and analyzed at both ODI Extracting learning as projects are implemented and when the project and portfolio level at least semi-annually, monitoring performance at the portfolio level, sharing learning with actionable information and lessons learned shared across teams on a consistent basis, are often not implemented across divisions, implementers and key partners: how because of lack of time or resources. This represents a missed have projects (not) reached their expected outcomes? opportunity to develop impactful solutions. In a constantly Defining learning objectives helps focus performance evolving world, we learn by doing. management and learning on priority topics. CGAP | ASSESSING FUNDER PRACTICES: EMERGING LESSONS FROM THE FINANCIAL INCLUSION NAVIGATOR 24 Resources: learning from the portfolio Encourage and measure outcomes Encourage “pause, reflect and learn” moments Measure performance at the portfolio level rather than outputs • Systematize learning as an expected project • CGAP, Portfolio Reviews Resource Guide • Quick read of this CGAP’s blog to see what it outcome • Summary in the dedicated chapter of the takes to monitor financial sector development, • Request that project progress reports go beyond CGAP’s Measuring Market Development rather than outputs activity tracking to include reflection on project Handbook • CGAP, Tool# 9: Training Companion for performance, partner and activity relevance, Funders, to design measurement questions that risks and changes to be made to initial plans help understand how change is/not happening; • “Allocate time and resources to obtain feedback, and CGAP’s Measuring Market Development stop, reflect, discuss, express doubts, share Handbook for full overview of how to measure insights, acknowledge failures and successes, results of financial inclusion programs that aim and in so doing, learn” System thinking: an for transformational change introduction to OXFAM staff • CIF’s Signals of Transformational Change • Find ways to challenge your pre-existing ideas, proposes a framework to identify signals of deepen your understanding of the system and transformational change related to climate see the perspective of others. consult with action. stakeholders you do not usually involve, or even • IFC’s Anticipated Measurement and Monitoring disagree with. Bring groups of stakeholders (AIMM) Sectoral Frameworks set out the together and facilitate the discussion to see underlying frameworks used to assess project what ideas emerge. OXFAM outcomes and market development contributions • CGAP, Tool#11, to help assess whether project for various sectors implementers have the capacity to experiment, • FinEquity mapped tools to measure women’s learn and adapt. economic empowerment in financial inclusion. CGAP | ASSESSING FUNDER PRACTICES: EMERGING LESSONS FROM THE FINANCIAL INCLUSION NAVIGATOR 25 Conclusion Implementation may vary depending on funders’ strategic and We hope to partner with other CGAP members through the Financial implementation models but acting on these insights is necessary Inclusion Navigator to identify new insights. and possible for all funders who wish to trigger change at scale, Please contact: that sustains beyond their project lifetime. • Estelle Lahaye: elahaye@worldbank.org and While there are many quick wins to be made, our work with funders has also pointed to the need for a more fundamental re- • Carola Saba: csaba@worldbank.org think of the role of development agencies in advancing inclusive finance. Many problems development cooperation seeks to address require innovative solutions, however, development agencies are set up to scale proven models rather than fostering innovation. In recent years, funders have started experimenting with variety of mechanisms to enable innovation and experimentation, and to work on root causes by facilitating knowledge sharing, networking and capacity building. These mechanisms often sit outside of main operations and remain small and dispersed. In a world of polycrisis and global challenges, innovation and facilitation need to be more at the center of what funders do. CGAP | ASSESSING FUNDER PRACTICES: EMERGING LESSONS FROM THE FINANCIAL INCLUSION NAVIGATOR 26 Members CGAP MEMBERS AS OF JULY 2022