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Round-table on Financial Engineering and Efficiency

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The North-South landscape of financing for development has changed considerably. The relatively close cohabitation which has prevailed between private and market financing (investments, commercial loans, market instruments) and ODA (based on concessional loans and subsidies to governments) is less and less commonplace. Interaction between private and public flows is growing ever stronger. Traditional donors are using more and more market mechanisms.

Innovation has reached institutional dimensions (new intermediation structures with innovative governance methods) and financial engineering. The two dimensions have been applied to raising additional resources and the ways in which the resources are used, whether they be traditional or innovative.

Summary of Workshop 3 “Financial engineering and efficiency”

With concrete cases and experts from various backgrounds (World Bank, WFP, French Development Agency, Center for Global Development, Argentine Health Ministry), the workshop discussed responses that financial engineering can provide with two specific sets of objectives:

(i) The management of vulnerability and risks – a critical issue, particularly in today’s context and (ii) The contribution of financial engineering to results-based incentive mechanisms.

Extensive discussions were held for future work in addition to those of the round tables of the previous evening.

The round table on risks talked about experiences in climate risk management in the farming sector (insurance mechanisms, climate by-products) and counter-cyclical loans of the French Development Agency, which will help absorb shocks that can emerge in public finances caused by external economic factors. Such mechanisms enable developing countries to better manage these types of risks.

The roundtable on incentive systems put forward promising initiatives to promote incentives for those involved (Argentina’s experience in financing health systems and the “cash on delivery” financing proposal).

When work in the two round tables was reported, the chairman, Essimi Menye, Cameroon’s Minister of Finance, stressed two points:

- Innovative risk mitigation instruments are crucial and can help find a solution to serious problems. They can provide significant aid to countries so that they can withstand shocks and natural disasters, with their implications in the area of food security, income, etc.

- Mechanisms promote incentives to help governments and public actors be more effective in ensuring high quality services to people. This is especially true in the area of human development concerning most MDGs.

- One of the challenges is to ensure that development actors improve the integration of these innovative financial initiatives in their way of working with others.

- It is difficult to innovate without disrupting legal frameworks, rules of the game worked out together and which take so much time to build. Yet we must do so if we are to effectively scale up innovate financing and eradicate poverty.

The financial crisis has changed the world’s way of looking at innovative financial engineering, which has experienced extremes. The examples given in this workshop have shown that, when used rationally, financial engineering can significantly contribute to improving the efficiency of development financing mechanisms.

Interventions of the 3rd workshop

  • AFD/World Bank Introduction to the workshop (English/French)
PDF - 12.7 kb

Round-table °1 : Risk Mitigation Instruments

  • Malawi food security risk management strategy and instruments Ekaterina Gratcheva - Lead Financial Officer, Banking and Debt Management, World Bank Treasury
PDF - 1013.5 kb
  • Weather Risk Financing for Agriculture and Relief/Recovery : World Food Programme Experience and Reflections Ulrich Hess, Chief of Risk Reduction and Disaster Mitigation Policy, WFP
PDF - 291 kb
  • AFD Counter-cyclical loan Cécile Valadier - Research Department - AFD
PDF - 164.2 kb

Round Table n°2 : Financial Instruments and Incentive systems

  • NACER plan: Argentina’s innovative experiment with Result Based Financing for Health Martin Sabignoso & Humberto Silva, Argentina
PDF - 1.4 Mb
  • Cash on Delivery Aid: An innovative Proposal for Linking Aid to Outcomes Desmond Bermingham, Center for Global Development
PDF - 155 kb

15 June 2009

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