Collaboration for Post-conflict Rebuilding and Financial System Development: European Donors with KfW Leadership in Southeastern Europe
As part of their post-conflict reconstruction efforts, several European donors have worked together since late 1990s, to provide long term lending capital and technical assistance to financial intermediaries in Southeastern Europe. This paper describes the effective post-conflict rebuilding strategies of these donors to develop the financial system in Southeastern Europe, through funds managed by Kreditanstalt fur Wiederaufbau (KfW).The donors, including the European Union, the Netherlands Development Finance Company (FMO), and the Austrian, Swiss and German governments, pledged over 110 million euros to the banking sector in the region. Under the leadership of KfW, they:
- Forged a common vision for developing strong financial intermediaries;
- Delegated fund management to KfW;
- Harmonized lending terms and reporting requirements.
However, the path to efficient donor collaboration illluminated multiple challenges, vis-à-vis:
- Visibility needs of individual donor funds reduces effectiveness and adds costs;
- Insufficient policy coordination between field, administrative, and legal staff slows implementation;
- Complex administration reduces efficiency;
- Lack of precedent for translating grants into loans, confuses donors' procedures.
Despite these challenges, the collaborative effort has had a great impact, with significant accomplishments in Bosnia and Herzegovina, Montenegro, Kosovo and Serbia:
- At the end of 2003, 26 local lending institutions had been strengthened with more than 14,000 loans outstanding to micro, small and medium entrepreneurs.
The paper further outlines the successes achieved through donor collaboration:
- Forging a common vision of financial sector development;
- Delegating management to a suitable technical partner;
- Creating a robust vehicle for coordination;
- Achieving greater impact.
The paper concludes that creation of a legal entity, in way of institutionalizing the European funds, would increase impact and reduce transaction costs for the financial institutions.
