OVERVIEW
Technical assistance: the outlook for a strategic tool for development finance Andrew Shaw, Head of technical assistance and grants, FMO
Technical assistance (TA) is the non-commercial support provided by a DFI to develop capacity and effectiveness. It complements funding to maximise development impact, contributing to achieving the United Nation's Sustainable Development Goals – with the goal of a better world for all.
AN ARTICLE BY ANDREW SHAW Head of technical assistance and grants, FMO Andrew Shaw is in charge of FMO’s technical assistance (TA) and grants activities. He has over 20 years of experience in the origination, design and implementation of successful TA projects and programs to support private sector development and its contribution to achieving the SDGs.
A
gainst the background of the COVID-19 pandemic, a recent survey by FMO of more than 900 MSMEs in Eastern Europe and Africa showed that less than 10% of these took action and invested in structural transformations. Here, TA can play an important role. TA is rooted in traditional development assistance – the programs funded by governments and international organisations. From a DFI perspective, it complements commercial and blended capital to maximise development impact. It is the most concessional instrument of DFIs, and may be a market differentiator because commercial parties may not have access to it. In terms of private sector development, DFIs offer a unique view of the market and the capability to deploy TA complementary to
(or in anticipation of) investments or loans, with catalytic aims (i.e. crowding in others to increase financing flows). TA is typically financed by a combination of governments (DFI shareholders), own (DFI) resources and other funders (e.g. the European Commission). The way TA mandates are defined is determined by the DFI’s strategy, the criteria of the funding partner, and market forces. Aligning these is important to ensure effective TA programs. DFIs want TA to be deployed effectively. Thus the additionality test - how likely is the project and its intended outcomes and impacts to be realised without TA? – is important. The transaction-level approach to TA has been most common among DFIs, with a focus on mitigating certain risks, or seeking an improvement of the beneficiary firm’s capabilities. However, DFIs
In terms of private sector development, DFIs offer a unique view of the market and the capability to deploy TA complementary to (or in anticipation of ) investments or loans, with catalytic aims, i.e. crowding in others to increase financing flows.
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