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Clarity about market failure and mandate is essential to design an effective evaluation system.
DFIs need systems that generate and interpret data in ways that are relevant to decision-makers
It is essential that DFIs embed and use data in decision-making processes  

Without systems to monitor progress to make timely course corrections, to test and assess necessary innovations, and to evaluate results it will be hard to achieve the Sustainable Development Goals

Last week I attended the Global Symposium on DFIs: Balancing Sustainability and Social Mandate, which took place in Malaysia, and was organized by the World Bank Group and Bank Negara Malaysia. I was impressed by how much measurement, evaluation, and learning from experience featured in each of the sessions starting from the opening remarks by Datuk Muhammad bin Ibrahim, the Governor of Bank Negara Malaysia.

The reasons are simple.

Delivering results in a complex dynamic world is difficult. Without systems to monitor progress to make timely course corrections, to test and assess necessary innovations, and to evaluate results, it will be hard to achieve the Sustainable Development Goals. And we will understand even less which policies and programs work, in which context and why. The consequence? We could be spending a lot of time and resources just to find out later that there was a better way to get to our goals.

Why would that apply in particular to Development Finance Institutions?

Symposium2.pngThe SDGs require that we mobilize considerable financial resources. DFIs can complement other financial institutions to tap possible sources.

Secondly, DFIs exist to address specific market gaps where private commercial banks don't deliver services. The market, therefore, will not signal to them success or failure. Instead, evaluation systems need to do so to ensure they fulfill their mandate.

And thirdly, the business of DFIs is difficult. Knowing which programs produce results and which do not is essential to ensure the DFI is efficient and effective.

In addition, DFIs are mostly publicly financed institutions and need to be accountable to a number of stakeholders for what they achieve with the given resources. Experience from the past showed that DFIs can face challenges in governance, performance, and results. To help them fulfill their valuable role as part of a broader financial system, they need to monitor and evaluate performance and results.

What does this mean for the evaluation systems of DFIs? Here are my six recommendations.

1. Clarity about market failure and mandate is essential to design an effective evaluation system. If the DFI is not clear about the results it has to achieve, it will focus on services it wants to provide regardless of whether they help overcome market failures or not.

2. Based on the mandate, specific outcomes and meaningful metrics need to be selected. And, they need to integrate indicators of financial performance with indicators of social, economic, and environmental outcomes because the latter can impact positively or negatively the financial performance of the DFI.

3. Be selective with Indicators. Many DFIs are concerned about the cost of data. Not all indicators need to be collected by the DFI. Instead, identify who else cares about relevant indicators and might be collecting data that can be used. In some cases, this form the basis of new partnerships.

4. Institute data collection and analysis capacity. Without systems that incentivize the generation and interpretation of data in ways that are relevant to decision-makers, data will be collected in haphazard ways and therefore be useless.

5. Embed and use data in decision-making processes. This is one of the most important and often neglected steps. Improvements, course-corrections, and learning cannot happen if evidence is not used. Evidence is not the sole driver of policy-making, but policy choices should be cognizant of evidence and its implications. A recent blog by Auguste Kouame illustrates this point clearly - Evaluation for Policy-making: Are We There Yet?

6. Lead by example. DFIs have an important role modeling effect. Sharing data and demonstrating how the DFI acted on evidence would send strong signals to other financial institutions.

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