Corporate-level Evaluation on IFAD’s Engagement in Pro-poor Value Chain Development
The attention to value chain development is becoming increasingly important for IFAD as traditional food systems are being replaced by organized value chains. Over the last decade, the number of value chain- relevant projects supported by IFAD has increased from 41.5 per cent to 72.3 per cent, while the volume of loans approved has gone from 50 per cent to 81 per cent. This major shift posed challenges as the value chain approach was new to many IFAD staff and government staff in charge of managing IFAD-funded projects.
The evaluation found that project design has improved over time, reflecting a better understanding of the value chain concept. However, analytical gaps remain. Few designs have been supported by market intelligence to prioritize the choice of commodities and steps within the value chain in order to achieve pro-poor outcomes.
The evaluation suggests that it is possible to reach out to poor and very poor producers through value chain approaches, but this requires specific attention. The most convincing pro-poor outcomes occurred in projects where IFAD had experience and where multi-stakeholder platforms were created to enable dialogue between value chain actors.
The evaluation recommends that a corporate strategy be prepared for IFAD’s support to pro-poor value chain development that clarifies the objectives and principles of engagement as well as the resources required. It suggests a “programmatic” approach to value chain development, recognizing the need for long-term engagement. Finally, the evaluation emphasizes the importance of promoting an inclusive value chain governance and regulatory environment.
IFAD’s financial architecture
The overarching purpose of the corporate-level evaluation on IFAD’s financial architecture is to independently assess how IFAD creates value for Member States through sound investment decisions and financial strategies contributing to rural poverty reduction. This is the first evaluation of its kind undertaken by a development finance institution and one of the most complex evaluation exercises conducted by the Independent Office of Evaluation (IOE). It examines the policies and systems adopted to mobilize, manage, allocate and disburse financial resources to fulfil IFAD’s mandate.
The evaluation generated a number of important findings and recommendations that merit close attention. The main finding is that the Fund’s financial architecture has been under strain since the Ninth Replenishment period of IFAD’s financial resources. As it stands, it can no longer support an expanding programme of loans and grants. Moreover, the financial architecture does not pass the test of financial sustainability: accumulating losses lead to an erosion of IFAD's equity. Therefore, the evaluation recommends that important reforms be undertaken to address the factors affecting IFAD's financial sustainability, the mobilization of financial resources and the rationale by which these are allocated. It also recommends introducing new and revising current financial products to respond to the demands of borrowing Member States, as well as to internal and external financial governance. Accomplishing these reforms will be essential to ensure the Fund’s financial sustainability, enabling IFAD to fulfil its unique mandate of rural poverty reduction and make a substantial contribution towards meeting the goals set in the Agenda 2030.
The corporate-level evaluation was discussed at the 124th session of IFAD’s Executive Board on 12 September 2018. The Board noted that the findings and recommendations of the evaluation raised vital questions with regard to the future character and structure of the Fund.
IFAD’s Decentralization Experience
The Independent Office of Evaluation conducted a corporate-level evaluation of IFAD’s decentralization experience in 2016, covering the period from 2003 through mid-2016.
The evaluation found that the objectives of the decentralization process were broadly relevant to improve the development effectiveness of IFAD-funded operations. In particular, by bringing IFAD closer to its operation and to the country development context and actors, country presence was expected to improve project and strategy design and implementation support, enhance engagement in non-lending activities, improve alignment with country systems and donor coordination, and contribute towards system-wide coherence of the United Nations.
However, IFAD could have learned more from the experience of other organizations and could have been more realistic in its expectations. In particular, the range of activities that country offices were to perform was very broad compared to the resource envelope allocated to them. Moreover, for many years IFAD concentrated on expanding its country presence but paid little attention to re-organizing headquarters.
The report also highlighted that by opening country offices, IFAD was in a better position to provide implementation support to its operations. It is through this support that country offices contributed to better project performance and results, especially in terms of impact and gender equality. But the contribution to non-lending activities (e.g. knowledge management, partnership-building and policy dialogue) was mixed. This was partly due to the limited human and financial resource available at the country-office level for non-lending activities. Moreover, engagement in policy dialogue largely depended on relevant interests and experience of individual staff members.
IFAD’s Performance-based Allocation System
IFAD’s Performance-based Allocation System
Since it was introduced by IFAD's Executive Board in 2003, the Performance-based Allocation System (PBAS) has enhanced the Fund's credibility, transparency and predictability of financial resource allocations to its developing Member States. The core feature of IFAD's PBAS is that country allocations are calculated using a specific formula to generate a country score, using several variables that, put together, determine country needs and country performance. Overall, the PBAS is found to be relevant. The formula should better factor in some key dimensions of IFAD's priorities, such as food security, nutrition and climate change. It also should improve the way it considers vulnerability issues as determinants of country needs. The evaluation finds the system's effectiveness to be on the whole moderately satisfactory. The rationale for including or excluding countries from the PBAS and the underlying mechanisms guiding the capping system should be made more explicit and institutionalized. Among the recommendations, the need to refine the PBAS design, by sharpening its objectives and strengthening the rural poverty focus; streamline the process for better effectiveness; and enhance management and governance, by taking a more corporate approach to the PBAS in general.
|In-house learning event on the CLE-PBAS, 9 March 2016, IFAD headquarters. Photo by Maurizio Navarra.|
IFAD’s Engagement in Fragile and Conflict-affected States and Situations
This is the first corporate-level evaluation on IFAD's engagement in fragile and conflict-affected states and situations (FCS) undertaken by the Independent Office of Evaluation (IOE). It reflects IFAD's growing involvement in such contexts, and growing global interest in FCS. The evaluation focuses on IFAD's work with FCS over a 10 year period from 2004 to 2013.
The evaluation found that IFAD has a critical and distinct role to play in addressing the problems of fragile states which, in turn, are key to achieving a range of United Nations Sustainable Development Goals including the elimination of poverty, the promotion of sustainable agriculture and productive employment and the building of peaceful and inclusive societies.
The evaluation shows that there have been significant improvements in overall project achievement, project effectiveness, IFADÃ's performance as a partner and rural poverty impact in fragile countries. At the same time, the evaluation underlined the importance for IFAD to develop a new policy/strategy for its work in fragile situations, which would ensure even more customized approaches for better development effectiveness
Corporate-level Evaluation on the IFAD Policy for Grant Financing
Corporate-level evaluation. IFAD’s grants programme has a long history, dating back to the Agreement Establishing IFAD. The Executive Board approved a policy for grant financing for the first time in 2003 and a revised policy in 2009.
The overall objectives of this evaluation were to: assess the performance of the IFAD Policy for Grant Financing, in terms of relevance, effectiveness and efficiency; and generate findings and recommendations that will inform IFAD’s strategic directions and priorities for future grant activities.
This evaluation finds that grants can be an invaluable tool for IFAD to promote its agenda of rural poverty alleviation. Grants have allowed IFAD to collaborate with a wide range of organizations, such as farmers organizations, civil society and indigenous people’s organizations, and international agricultural research institutions. However, the relevance of the policy has been limited by lack of clarity and prioritization. Overall, the effectiveness of the policy has been moderately unsatisfactory, overall though have are signs of improvement since 2010.
IFAD Replenishments Evaluation
The corporate-Level evaluation reveals that replenishment consultations are critical for IFAD's financial sustainability and also provide a unique platform to ensure accountability for results and collective reflection on IFAD policy and strategic priorities. In particular, the changes introduced in the Ninth Replenishment of IFAD Resources have further strengthened the effectiveness and efficiency of the Fund's replenishment processes. At the same time, the evaluation identifies some areas for further development. On the financing side, IFAD would need to intensify its ongoing efforts to mobilize additional resources beyond replenishment contributions to meet the increasing demand for its assistance in all recipient countries. Moreover, the current representation system of IFAD Member States in the replenishment consultations might require some adjustments to better reflect the existing geopolitical and economic landscape. Finally, the evaluation also highlights the value for IFAD to simplify the current results measurement framework, including by more explicitly defining a theory of change for achieving rural transformation.
IFAD’s Supervision and Implementation Support Policy
This first evaluation synthesis report issued by IOE makes an initial assessment of the progress made so far in implementing IFAD’s Policy on Supervision and Implementation Support, identifying promising practices and emerging issues. IFAD’s decision to move to direct supervision and implementation support was one of the most far-reaching changes since the Fund was established. It has facilitated more direct follow-up with implementing agencies to resolve bottlenecks that have emerged during implementation and has allowed IFAD not only to achieve closer cooperation with other partners but also to establish and nurture partnerships with multiple stakeholders. Overall, IFAD should be commended for implementing such decision. However, the direct supervision and implementation support of IFAD operations has posed several challenges. The specific preparations needed for implementing this ambitious supervision policy were inadequate and implementation has progressed at different rates and with different modalities among the five regional divisions. In the longer term, IFAD should now consider drawing on the best practices from the different approaches to increase harmonization, efficiency and shared responsibilities across IFAD departments, and to reduce risk. There is also a need to optimize the division of labour in undertaking direct supervision and implementation support, within IFAD and between IFAD headquarters and its country offices
IFAD's Institutional Efficiency and Efficiency of IFAD-funded Operations
Background and objectives
This report presents the findings and recommendations of the corporate-level evaluation on IFAD's efficiency (CLEE). The CLEE responds to the growing interest in the organization's efficiency in the wake of the 2008 global economic and financial crisis, and the ensuing budget constraints affecting many IFAD member states.
The main audience of this evaluation is IFAD Management and the Executive Board. However, the evaluation will also be of interest to IFAD Member States, multilateral and bilateral organizations, as well as the development evaluation community in general. CLEE covers not only the efficiency of IFAD operations, but also institutional efficiency in a number of critical areas: the management of human resources, results and budgets, ICT, oversight and support functions, leadership and decision-making, and governing bodies. Given its scope and coverage, it has been arguably the most complex and challenging evaluation done by the Independent Office of Evaluation (IOE). The challenge has been exacerbated by the fact that this evaluation is the first of its kind among development agencies, requiring IOE to develop a dedicated methodology, and mobilize extraordinary expertise in evaluation and a range of technical areas. The unique features of this evaluation include the analysis of efficiency at multiple levels – output, outcome, impact and scaled-up outcome and impact, which is very relevant for IFAD. Credit goes to the Executive Board and IFAD Management for their support in this undertaking, as well as for their openness to engage with IOE throughout the evaluation process, and share with us the necessary data, information and documentation required for our analysis.
IOE has been ably supported by a highly credible team of consultants, with country case studies mostly done by national consultants (annex 14). IOE has benefitted from the insightful inputs of two senior independent advisers, Robert Picciotto and Richard Manning, who ensured that IOE and its consultants followed the most appropriate evaluation methodology and process to conduct this evaluation, and who also reviewed and commented on several deliverables, including the draft final report. Their joint analysis on the quality of the evaluation has been included (annex 10). The CLEE also included valuable contributions by several IOE staff at different stages, however, in line with the IFAD Evaluation Policy, as the manager of the CLEE, I take full responsibility and ownership of the contents in the final evaluation report and the overall evaluation process.
In terms of process, special effort was made by IOE throughout the evaluation to minimize surprises and maximize learning and dialogue. For example, emerging evaluation findings were discussed with IFAD Management in a timely manner, both informally and formally. Management was given the opportunity to review and comment on the emerging findings in an interim report, and their feedback was duly considered by IOE in the preparation of the draft final evaluation report, where they also had a chance to comment. The main findings were presented to the Evaluation Committee and the Executive Board for their feedback before the preparation of the final evaluation report.
The CLEE found that a number of initiatives to enhance efficiency and effectiveness have been undertaken in recent years, including in the course of the evaluation. They include the introduction of direct supervision and implementation support, expanded country presence, the Change and Reform Agenda, commitments related to efficiency undertaken in the context of IFAD9 consultations, a more transparent and strengthened budget process, and the even more recent Strategic Workforce Plan.
On the operational front, IFAD is engaged in a fundamental transition from a focus on financing individual projects to a programmatic approach that links knowledge work, policy dialogue and partnerships to projects in each country, with growing attention given to the scaling up agenda. It will take time for the full benefits of many management decisions and reforms to be realized fully. At the same time, there are a number of opportunities for increased efficiency at different levels, and they are enumerated in the report. In pursuing these opportunities, IFAD Management and the Executive Board must be mindful of the trade-offs between efficiency at these different levels.
With respect to the governing bodies, CLEE finds that their overall architecture is complex, but it works. The non-resident nature of the Board is a positive characteristic but it does contribute to an overloaded agenda. There are opportunities for the Governing Council to delegate to the Executive Board, and for the Board to delegate to Management. The report includes a dedicated chapter on the efficiency of IFAD governing bodies, with many interesting findings that deserve reflection.
Recommendations. The evaluation has a number of important findings and recommendations that merit close attention. The overarching recommendation is that IFAD "Raise the bar for IFAD's own performance as a partner to promote scaled-up impact of IFAD-supported operations". This recommendation is grounded in the rationale that for IFAD to make a significant impact, it must leverage its resources manyfold by attracting partner resources on a very large scale to replicate and scale up pioneering, innovative IFAD-funded operations and activities. This requires that IFAD become the center of excellence in its niche by raising the bar on its own performance. It compels IFAD to aspire to the threshold of ‘satisfactory or better' performance as against the current practice of ‘moderately satisfactory or better'. That is the first step toward excellence in all aspects of operations, and toward developing IFAD-supported projects and country programmes that can lead to the desired levels of scaled-up impact.
This recommendation is supported by seven sub-recommendations:
- Scaling up of high impact, innovative approaches emerging from IFAD-supported projects and programmes should become the objective of IFAD's business model;
- Articulate and implement a clear vision for country presence and how IFAD would operate in a decentralized environment;
- Manage oversight and support units, including critical ICT functions, with a clear focus on increasing service quality and cost efficiency;
- Better manage scarce budgetary resources towards high-quality results;
- Manage strategically the skills composition, cost and performance of the workforce;
- Focus oversight by the governing bodies on key strategic issues, with more attention to discussing results, lessons and evaluations;
- Instill an institutional culture of accountability and performance, and strengthen the reporting for results.
With respect to the governing bodies, the evaluation also recommends the introduction of a code of conduct, a normal feature of international financial institutions, and the development of broad terms of reference for Executive Board members to assist Member States in designating their representatives. Discussions on the CLEE by the Evaluation Committee and the Executive Board have resulted in broad agreement on the recommendations, and highlighted the critical importance of effective and timely follow-up. Management and IOE agree that the best way forward is to combine the recommendations of the evaluation and the efficiency-related commitments undertaken in IFAD9 consultations into a single, consolidated action plan for further enhancing IFAD's efficiency.
IFAD's Private-Sector Development and Partnership Strategy
Background and objectives (see paragraphs 69-71).1 Upon approving IFAD's Private-Sector Development and Partnership Strategy in 2005 (hereafter referred to as the private-sector strategy), the Executive Board requested the Independent Office of Evaluation to undertake a subsequent evaluation. The evaluation objectives were to: (i) assess the relevance and evaluate the implementation of the strategy; (ii) evaluate the emerging results of IFAD-supported projects designed after its adoption; (iii) assess the evolving approaches, as well as good and less good practices, to IFAD's private-sector development efforts; (iv) examine the instruments and experiences of other development organizations in engaging the private sector in agriculture and rural development, with the aim of identifying lessons that could be pertinent for IFAD; and (v) generate a series of findings and recommendations that could serve as building blocks for IFAD's future engagement with the private sector.
The importance of the private sector (see paragraphs 4-14). Private-sector entities have a central role to play in smallholder agriculture and rural development, offering opportunities for the creation of employment and wealth in rural areas. Their contribution in promoting access to markets, undertaking innovations, providing essential services - including technical assistance, training and rural finance - and supplying inputs has proven to be complementary and critical to the services provided by government agencies, NGOs and civil society organizations. However, the private sector is not a homogenous group of actors. Smallholder farmers, farmers' associations, agribusinesses and other commercial firms, as well as large national and international conglomerates, all form part of the growing private sector in developing countries.
IFAD's role and comparative advantage (see paragraphs 15-23). Given its mandate and taking into account the private sector's key role in smallholder agriculture and rural development, IFAD can aspire to take a leadership role globally in developing innovative approaches to engage the private sector to the benefit of the rural poor. IFAD's commitment to make the private sector an integral partner has been tenuous and not universally well received among staff until recently. In the last two years, however, IFAD Management has forcefully articulated a vision that sees small agriculture as a profitable business and building block for a more prosperous and dynamic rural society.
The relevance of IFAD's private-sector strategy (see paragraphs 84-99). The goal "to engage the private sector to bring more benefits and resources to IFAD's target group" and the immediate objective "to increase pro-poor private-sector operations and investments in rural areas" of the strategy were and remain relevant. However, there were little or no roll-out actions to facilitate implementation of the strategy; and the strategy did not consider adequately the need for ensuring corporate social responsibility and promoting fair trade practices and sound environmental management, in a context of wider private-sector participation. Nor did the strategy sufficiently address the risks inherent in engaging with the private sector, such as the implications for poor people who are unable to take advantage of the resulting opportunities.
The 2005 strategy included the first IFAD-specific definition of the rural private sector. The evaluation concluded that this definition is too broad-based and does not adequately differentiate among private-sector operators working in agriculture and rural development, who often have very different needs, requirements, capabilities and opportunities. Rather, the definition lumps together operators at the smaller (rural) end of the private-sector continuum including agroprocessors and other rural microentrepreneurs, as well as national, regional and international operators. It also includes private-sector operators from both the formal and informal economy.
The three broad lines of action of the strategy were as follows: (i) policy dialogue for local private-sector development; (ii) investment operations to support local private-sector development; and (iii) partnerships with the private sector in order to leverage additional investments and knowledge for rural areas. They were well chosen to achieve its goal and objective. The strategy's results framework was however weak, well defined incentives and accountability were lacking, and no provision was made for systematic outreach and dissemination following its approval. Preparation of the strategy was not adequately organized, and did not entail any consultation with a cross section of IFAD staff or partners from developing countries and other organizations.
The implementation of the strategy (see paragraphs 105-150) was examined according to the strategy's three broad lines of action and implementation requirements. With regard to policy dialogue, about half the new generation country strategic opportunities programmes (COSOPs) - those considered by the Board between 2007 and 2010 - cover policy dialogue on the private sector and consultation with private-sector entities. There is however room for improvement in promoting a favourable policy and institutional environment for private-sector engagement at the country level, as well as scope for wider engagement in key policy arena that would create a more conducive international and regional trade environment.
Projects designed in 2009, as compared to those designed in 2004, made better provision for private-sector development through greater attention to rural micro and small enterprises, commodity value chains, market linkages and agricultural productivity. However, this was attributable to the gradual increase in IFAD's investment in marketing and rural enterprise development, rather than a result of implementing the strategy. Projects have not generally emphasized the role of the private sector in research and extension, analysed the potential risks associated with the value chain approach, made full use of information and communication technology to promote market access, or built gender and environmental concerns into projects with major private-sector components.
The targets set in the strategy's results framework for mobilizing resources from the private sector for IFAD-funded projects have been met and exceeded. However, the evaluation found only a few concrete examples, as with the Alliance for a Green Revolution in Africa (AGRA), of partnerships to leverage investments from private foundations or philanthropic organizations. The Fund has some partnerships at the institutional level with other multilateral organizations (e.g. the OPEC Fund for International Development) specifically for private-sector development, but on the whole these are less developed than its partnerships in other areas.
Finally, the evaluation found that IFAD's governing bodies (especially the Executive Board, Evaluation Committee and replenishment consultations) have generally encouraged it to take a more favourable stance towards private-sector development. However, the Board did not exercise adequate oversight in the strategy's implementation including monitoring the fulfilment of "implementation requirements" (section VII of the strategy) such as reporting on achievements against specified key performance indicators.
Emerging results from the new portfolio (see paragraphs 152-159). The emerging results of projects with a significant private-sector component that started up after the strategy was approved in 2005 – as recorded by IFAD's self-evaluation system - reveal better overall performance than similar projects approved before 2005. In particular, projects approved in recent years are performing better on 12 of the 18 indicators included in the project status reports prepared by country programme managers (CPMs) annually for each operation, including in terms of their "likelihood of achieving their development objectives". This is important, as the ultimate aim of IFAD-supported projects is to promote private-sector engagement as a means of achieving better poverty reduction results on the ground, rather than supporting private-sector development and engagement as an objective per se. Finally, recent data from the Results and Impact Management System surveys show that the performance of most ongoing projects is moderately satisfactory in specific areas related to private-sector development, such as the "likelihood of sustainability of market, storage, processing facilities".
Among other issues, the seven country studies brought out three key insights that could contribute to further strengthening IFAD's work on the private sector (see paragraphs 181-192): (i) government commitment to and support for private-sector development is key to IFAD's ability to design effective investment operations in agriculture and rural development; (ii) IFAD needs to use all its instruments (and not just investment operations) more effectively for promoting private-sector development in borrowing countries; and (iii) very little use has been made of the grants programme to support private-sector development, for example in terms of promoting policy dialogue and knowledge management.
The importance of corporate business process for better results (see paragraphs 195-238). The strategy made provision for adjustments to some key corporate business processes such as training, learning, knowledge management, and monitoring and reporting. In particular, it specified a number of "implementation requirements" to ensure that the strategy could be appropriately implemented to achieve the desired results on the ground. Some of those requirements were not met at all (e.g. appointing a staff member to oversee implementation, developing guidelines or a toolkit to operationalize the strategy, training staff); and most others only in part. The evaluation concludes that this has impeded the achievement of results on the ground.
IFAD's existing organizational architecture and workforce (see paragraphs 207-211) are insufficient to promote partnerships and engage the private sector. In addition to the lack of a senior technical adviser on private sector issues, 2 a large number of front line staff (i.e. CPMs) have limited knowledge of and experience with the private sector including in terms of resource mobilization, which requires specialized skills, competencies and know-how. Efforts to conduct systematic training on the topic have also not been forthcoming. In spite of this, IFAD has done relatively well in adjusting the focus of recent operations to encompass value chains, market access and employment creation. But if IFAD is to develop a comparative advantage in linking smallholders to markets, it will need to build up the skills and global experience of its staff.
Instruments for private-sector development (see paragraphs 226-238). The evaluation concludes that IFAD has not yet fully leveraged its existing instruments (loans, grants, policy dialogue, partnership building and knowledge management) to promote partnerships with the private sector. At the same time, the evaluation underlines the limitations of the existing instruments and explains why using loan-funded investment projects (i.e. sovereign lending) – the main instrument currently at IFAD's disposal for rural poverty reduction - is not effective for private-sector promotion in support of the rural poor. For example, governments are often reluctant to use public money to support private-sector entities, and when they are prepared to do so they often cannot ensure efficient management of such funds. Nor is the private sector keen to work in direct partnership with government institutions. Hence the bulk of assistance from other multilateral development banks (MDBs) for private-sector development is provided on a non-sovereign direct lending basis.
The evaluation concludes that if IFAD were able to lend directly to the private sector, including small and medium enterprises, agroprocessors, microfinance institutions, cooperatives, farmers' associations, commercial banks and others who face challenges in mobilizing financial resources, this could provide significant advantages to the rural poor. Direct lending to the private sector, which can take a variety of forms (e.g. equity investments, loan guarantee funds, venture capital, investment finance.) would contribute to spurring market-led development among the rural poor, especially if used in a coherent and synergistic manner in country programmes with IFAD's traditional instruments for agriculture and rural development.
Recommendations. The evaluation suggests that consideration of a new corporate private-sector strategy would be timely, and offers the following recommendations as inputs.
Strengthen existing instruments to support private-sector development. IFAD provides loans to governments, has a grants programme and is involved in non-lending activities (policy dialogue, knowledge management and partnership building). However, all these instruments must be used to their full potential, in particular ensuring that they are mutually reinforcing and can in a holistic manner contribute towards IFAD's private-sector development objectives.
Strengthen the design, supervision and implementation support of loan-funded projects that include private-sector development. More thorough analysis of the requirements for generating pro-poor benefits and possible risks of collaboration with private-sector entities involved in commodity value chains should be undertaken, with due attention to gender and environmental considerations. The grants programme should be used to provide complementary support to private-sector entities involved in IFAD operations, including technical assistance and advisory services to strengthen the capacities of private-sector entities. This might eventually necessitate an expansion of IFAD's grant policy.
Ensure that COSOPs coherently articulate how synergies will be established between investment operations and non-lending activities to support private-sector development at the country level. Specific recommendations with regard to policy dialogue and partnerships are summarized below:
Policy dialogue. IFAD needs to: (i) use the COSOP formulation process to more systematically discuss opportunities and constraints for rural private-sector development and to promote a dialogue within the country on these issues; (ii) work more closely with other MDBs to ensure that issues affecting private-sector development related to agriculture are on the agenda for dialogue with governments; and (iii) use the grants programme more strategically to fill gaps in IFAD's and the governments' understanding of these issues and provide the analytical underpinnings for enhanced policy dialogue.
Partnerships. It would be important for the Fund to engage more widely with foundations and philanthropic organizations with a strong private-sector orientation, at the corporate and country levels, that can provide knowledge and financing for IFAD-funded activities. In addition, the Fund should strengthen its collaboration with MDBs at both the corporate and country levels, inter alia, focusing on policy dialogue, knowledge management, cofinancing of operations, and identifying opportunities for scaling up successfully piloted innovations on private-sector development through IFAD operations. In particular, opportunities for partnership should be explored with agencies such as the International Finance Corporation (IFC), which can lend directly to the private sector and whose funding is seen as additional by governments. Under such partnerships, IFAD could support smallholders with seed capital, technical know-how and business development services, to engage in higher productivity activities and move up the value chain.
Establish a private-sector development financing facility. The evaluation concludes that IFAD should leverage its existing instruments to their full potential, but this would provide only incremental improvements to IFAD's target groups – especially small farmers. Therefore, in addition to implementing the above recommendation, the evaluation further recommends that IFAD establish a private-sector development financing facility to directly channel resources for private-sector operations in rural areas, with non-sovereign guarantees.
The proposed facility would support selected elements in the value chain that would have a direct impact on enhancing the productivity of small farmers and provide them with better incomes. However, the new corporate private-sector strategy will have to determine what type of direct support (e.g. equity investments, loan guarantees, venture capital, investment finance, technical assistance and advisory services) it would consider a priority for the rural poor.
The facility could include initial financing of US$200 million for a five-year period. Voluntary contributions would be invited from Member States, foundations and philanthropic organizations, and others. The evaluation recognizes that direct lending would have significant implications for IFAD's legal, financial and supervision systems, as well as require IFAD to put in place standards of corporate social responsibility as a basis for due diligence in order to minimize the risks of lending directly to private entities. Additionally, it would necessitate developing staff capacities and expertise, as well as an adequate organizational structure. The evaluation recognizes that direct lending to private-sector entities (i.e. non-sovereign loans) will require the concurrence of the Board.
The facility would have a clear governance framework, and a systematic monitoring, evaluation and reporting system. In particular, ongoing monitoring and annual reporting to Senior Management and the Board throughout the five-year period will be essential to success. A thorough assessment of the facility and the projects funded at the end of the five years would serve as a basis for deciding together with IFAD governing bodies whether direct lending to the private sector ought to become a regular instrument at the disposal of IFAD for its rural poverty reduction efforts, as well as the size and administrative location of the facility.
Assess IFAD's human resources and organizational architecture. Management should undertake a thorough assessment of IFAD's organizational architecture and human resource capabilities and requirements for private-sector development, including management of the facility and promoting private-sector development in general. In this regard, the option of further reconfiguration by establishing a specific organizational unit (division3 or department) responsible for promoting IFAD's work on private-sector development and engagement should be explored. The reconfiguration could group together existing key staff currently working on private sector-related issues (senior technical advisers on private-sector development, rural finance and others). The assessment should also lead to the definition of an appropriate incentives and accountability framework for IFAD's work with the private sector. In addition, it is recommended that IFAD organize periodic peer reviews on its private-sector activities and architecture.
Definition of private sector. The new strategy should adopt a clearer and more focused IFAD-specific definition of the private sector, in light of the Fund's mandate to assist the rural poor. It should recognize that the private sector is a heterogeneous group of actors who have different capabilities and requirements. It should promote partnerships with private enterprises that can provide resources and services that improve the livelihoods and incomes of the rural poor.
Process for preparation of the new IFAD private-sector strategy. It is recommended that the strategy be developed based on consultation within IFAD to ensure that all key inputs are duly captured and as a means to building ownership for its implementation. Selective consultations with outside partners should also be conducted to obtain a wider view and feedback on the strategy. This could include farmers' organizations, NGOs, other international financial institutions and development organizations that are currently working with the private sector (International Finance Corporation, United States Agency for International Development, African Development Bank, etc.), as well as private-sector entities.
2/ Notwithstanding the lateral transfer in April 2011 of a staff member from the Near East, North Africa and Europe Division to work on private-sector development in the Policy and Technical Advisory Division.
3/ For example, along the lines of the recent establishment of a central Environment and Climate Division, including the assignment of dedicated staff in each PMD regional division working on the same topic.