Lessons learned

Evaluating the effectiveness of our sustainability policies

Every five years, our work is evaluated by the Dutch government, our principal shareholder. The evaluation of FMO, concluded in 2021, focused on investments made between 2013 and 2018 and assessed our performance on development impact, the mobilization of capital and management of environmental and social issues (E&S).

In the report, FMO was recognized as a leading organization in the E&S field as well as for its experience in blended finance and capability to mobilize private capital towards the SDGs. The evaluation recommended that FMO further develop its impact measurement framework and deepen local partnerships to create greater impact. It further suggested improvements to its sector initiative approach and Independent Complaint Mechanism (ICM), which we have since addressed. In 2021, we developed a standardized approach to sector initiatives and made ICM-related information and tools available in several languages commonly spoken in our markets.

In addition, we completed an evaluation of our contribution towards SDG 10 (Reducing Inequalities) with respect to financial and non-financial additionality and mobilization towards achieving this goal. To analyze the connection between E&S activities and SDG 10, both RI and non-RI investments were included. Overall, FMO performed in line with its targets, where 31% of new investments received an RI label in the reviewed years. However, the absolute volumes of RI-labelled new investments did decline in 2019 and 2020.

The evaluation identified a few areas of improvement. First, to include a global inequality lens to our investments and focus investments more towards countries with relatively high poverty rates. Second, to ensure more coherence between our strategy and the main development gaps such as inclusive businesses in Latin America and the Caribbean and access to energy in Africa.

Furthermore, three strategic studies commissioned to external consultants were finalized in 2021. These studies provided insights into emerging challenges or opportunities and have helped inform our current business and impact strategies.

The first study identified conditions for investing in fragile states, part of MASSIF’s strategy and of interest to FMO and the DFI community. The study highlights the challenges of operating in fragile states, particularly relating to weak institutions. Recommendations include taking a more strategic approach in fragile states and investing in context analysis and extended due diligence, considering the importance of informal dynamics (e.g. informal power relations, traditions and beliefs) in addition to formal characteristics. The study also emphasized the importance of adapting financial services for maximum flexibility, leveraging technical assistance, harnessing the power of partnerships and the development of relevant skillsets, including political economy analysis.

The second study assessed evidence for financial inclusion. The study highlighted knowledge gaps, such as the impact of certain types of FinTech business models on women’s financial inclusion or the insufficient evidence of the effect of technical assistance for digitalization of financial services on end-beneficiaries. We learned where evidence is strong and therefore confidence of financial inclusion’s impact is validated, and where evidence is weak or non-existent, opening space for funders, researchers, and financial institutions to work together. FMO used the study to guide its evaluation agenda on financial inclusion and to engage with stakeholders. In addition, FMO’s FinTech strategy took onboard two key findings, namely to generate knowledge around different FinTech business models and their impact, and to improve knowledge management on CD granted for digitalization activities.

The third and final study looked at the impact of clean cookstoves on health, economic and environmental outcomes, and assessed the factors that can help clean cookstoves businesses succeed. We learned that the impact on income and women’s welfare are positive, but that there is less evidence for impact on health and the environment. Also, realized impact is highly dependent on the actual usage of the stoves, which is often an obstacle. We furthermore learned, it is important to take local policies into account, invest in companies that know the local context, and ensure that cookstoves meet local needs.

Evaluating FMO’s additionality

Additionality^[1] is key to FMO’s mandate. Two studies commissioned by the Dutch Ministry of Foreign Affairs found that FMO’s additionality takes on different forms. The evaluation of FMO’s investments between 2013 and 2018 found that additionality is rooted in the longer tenors FMO provides to customers, even compared to other DFIs. In addition, the study identified the flexibility in providing products that suit customer needs as an important differentiator, for example countercyclical financing in local currencies and the adjustments to financing terms during the COVID-19 pandemic. An evaluation of MASSIF investments concluded that FMO’s additionality was rooted in helping customers close funding gaps and acting as a strategic anchor in the establishment of investment funds.

FMO completed a review of its trade finance guarantee (TFG) that it has offered for many years. The review concluded that the TFG had a relatively low take-up, offered limited additionality to and impact on our markets, yet put a strain on internal and external resources as a result of regulatory requirements. FMO decided to discontinue the product.

• 1 For a current definition of additionality, refer to the chapter ‘Our value creation model’.