Every year, FMO’s evaluations team conducts an in-house evaluation of one of FMO’s strategic sectors or impact themes. This year we have reviewed our investments made in the financial institutions sector between 2014 and 2019.
The aim of these corporate evaluations is to learn from past experiences and identify ways to increase FMO’s development impact and additionality.
The financial institutions evaluation report presents an analysis of FMO’s work with financial institutions and the impact created on FMO's key SDGs between 2014 and 2019. We have examined the way FMO promotes responsible banking in financial institutions customers through their Environmental & Social (E&S) operations and lending practices. Furthermore, we have reviewed FMO's role in comparison to commercial banks. The report ends with recommendations to enhance the impact of FMO's investments in financial institutions and its additionality to the market.
FMO's management of the departments involved welcomed the recommendations and have outlined follow-up actions. Several action points are already taken up by the teams or are in the process of being implemented. Huib-Jan de Ruijter, Chief Investment Officer a.i. at FMO, underlines the relevance of the findings and recommendations: “We are pleased to see that we, together with our financial institutions customers, have made good progress in the areas where we seek to maximize our impact: job creation through SME finance, reducing inequalities and climate action. We are confident that the recommendations that arise from this evaluation will help us realize, record and communicate our impact even more”.
FMO is working with financial institutions to create a world where finance is more sustainable and accessible to everyone. To this end, FMO offers a range of financial products and non-financial services from long term loans to private equity and capacity development.
The findings of the study reveal a strong growth of investments made in financial institutions between 2014 and 2019. Annual portfolio production from the debt and equity departments doubled from 2014 to 2016 (from EUR 600 million to nearly EUR 1,300 million in 2017) and then leveled off to 1,300 million in 2019. Approximately 60% of those investments were made in ‘universal’ banks in FMO’s focus countries. The remainder was invested in non-bank financial institutions, FinTechs and other. Click here for the most recent distribution of investments in financial institutions.
The development impact created on FMO's headline SDGs:
The development finance landscape has changed significantly between 2014 and 2019 as more capital became available in the market and commercial investors were seeking higher return investments. This had an impact on FMO's business. In addition, non-financial additionality became more important for FMO’s financial institutions investments. The volume of deals that had both ESG and financial additionality (39% annually) outgrew those based solely on financial additionality (18% annually). At the same time, the contribution of mobilized finance decreased from 2015 to 2018: mobilization volumes dropped from 89% of the value of FMO’s own investments in 2015 to 40% in 2018. In 2019, mobilization volumes increased again, partially thanks to an increasing contribution of FMO’s dedicated commercial investment partners in recent years. New forged commercial partnerships are expected to further impact mobilization volumes positively going forward.
The following suggestions are made to improve FMO’s impact and additionality: