FSD Africa is a regional financial sector development programme established by the UK Department for International Development (DFID). FSD Africa aims to build and strengthen financial markets across Sub-Sahara Africa to provide financial services that are affordable and accessible to the poor and channel investment to the real economy to support growth in employment and incomes.
DFID was considering a significant increase in funding to FSD Africa, increasing its original £30m grant with an additional c£60m to be deployed over a 4-5 year period and supplementing this grant funding with the establishment of a c£300m ‘development capital’ fund to allow FSD Africa to provide investment as well as grant funding.
RPA’s assignment was to devise an economic appraisal of the proposed FSD Africa programme to inform the appraisal case which was required to secure financing of the programme. This involved analysing an indicative portfolio of interventions prepared by FSD Africa and included a sensitivity analysis to test the impact of different allocations across funding instruments (grant and/or investment financing), intervention areas and countries. The model included:
- Grants and investments;
- Costs (including identification of key cost drivers);
- An analysis of the expected annualised economic and financial returns across the indicative portfolio and extrapolation across the whole programme funding;
- Net Present Value (NPV), Internal Rate of Return (IRR) and Cost Benefit Analysis;
- Sensitivity analysis for various parameters such as changes in the balance of funding instruments and changes in discount rates.
The model developed was strongly evidenced based, including drawing on actual and indicative returns across different types of funding instruments. All assumptions were clearly articulated and justified and the model was developed as a live tool to enable the UK Government to adjust it throughout the implementation phase of the programme.