The Next Generation of DFI Technical Assistance: Why it’s Time for Development Finance Institutions to Take a Standardised Approach
The past two decades have seen remarkable expansion in the scope, scale and aspiration of development finance institution technical assistance (DFI TA). In general, DFIs deploy TA alongside their investments in businesses, to reduce risk, increase or safeguard impact, increase value, and create a better enabling environment. In most cases, DFI TA is funded by the DFI’s corresponding government, though in certain cases, it is partially funded by shareholders or public funders.
While individual DFIs run TA projects under their own guiding principles, a handful of common themes have emerged in these projects. These include a focus on the sustainability of outcomes, the flexibility to adapt to changing circumstances, and additionality (which refers to value that serves the public good and would not have been created without the TA intervention).
Although these principles are commonly applied across institutions to some extent, a firm consensus on what “good” TA programming looks like has not been reached. TA strategies vary, ranging from direct support to investees, to interventions targeting broader market-level constraints. On an operational level, different rules exist for whether operational costs or capital expenditure can be covered by a TA project, and what level of contribution, if any, is required from the recipients. And while there is a growing focus on measuring the outcomes of DFI TA, measurement approaches differ from one DFI to another.
This lack of consensus presents three distinct challenges. First, the lack of standardised terminology and approaches partly prevents DFIs from coordinating the TA they’re offering to their respective recipients, even when these recipients are focused on the same development goals. Second, the absence of a standardised approach to results measurement holds back learning, and hinders comparison of investee-level results and overall TA outcomes. It also limits learning within and between TA portfolios, as there is no shared “language” of assessment. Third, it leads to confusion among TA recipients, hampering efficiency and adding to the administrative burden they face. Consequently, recipients may “shop around” for the TA providers with the most straightforward requirements, which can impede DFIs’ visibility into which providers/criteria are being used, while also driving down the quality and impact of the TA provided.
However, DFIs and other stakeholders are increasingly focused on finding solutions to these challenges. For instance, under the European Fund for Sustainable Development Plus (EFSD+), several European DFIs are receiving access to (additional) TA funding, creating new incentives for collaboration and alignment. The fund has led participating DFIs to consider how to organise, programme, plan and deliver on a more aligned approach to TA.
Considering these developments and the expanding scope and ambition of DFI TA, we believe there’s a strong case for a standardised approach to TA design, delivery and results measurement. We’ll explore some potential ways DFIs can move toward this standardisation in this article — the second in a two-part series exploring the value and uses of DFI TA — discussing the benefits that greater standardisation would bring to both DFIs and the organisations they support.
What Can DFIs Learn from Other Approaches to Standardisation?
There are several examples that could serve as useful benchmarks to address the lack of a consensus approach to TA among DFIs. For example, the Blended Finance Principles developed by the OECD Development Assistance Committee were driven by the need to align development finance industry best practice with the SDGs. And the IFC’s Performance Standards on Environmental and Social Sustainability have become industry practice across the DFI community when it comes to assessing and managing environmental, social and governance issues.
In the impact investing space, the Global Impact Investing Network’s IRIS+ offers a standardised impact measurement system that has been widely adopted across the industry. Another example is the Joint Impact Model, which is an aligned approach between DFIs on how to measure and report on the indirect impact of investments. But these models have not yet crossed into widespread use on TA projects.
There is reason to believe that this sort of alignment could be achieved, as DFIs have come together to standardise and coordinate their efforts in other contexts. On the investment side, the 2X Challenge, launched in 2018, has become a go-to standard for gender-lens investing, providing an example of a streamlined framework that DFIs and other development and private sector funders are using to guide their investments in women. In another example, European Financing Partners — a joint venture between European Development Finance Institutions (EDFIs) and the European Investment Bank established in 2003 — has become one of the most integrated ways in which EDFIs collaborate and align their efforts.
In related fields, the Doing Development Differently manifesto, conceived by a team from Harvard University in 2014, successfully united over 200 organisations around a set of principles to guide international development programming. And the Donor Committee for Enterprise Development (DCED) Standard has gained recognition as the gold standard for measuring results in private sector development programming. Jim Tanburn, Coordinator of the Committee from 2004 to 2023, explains the process of establishing the DCED Standard as follows:
“The process leading to first publication of the DCED Standard in 2008 started with agreement on the problem: lots of theory but less by way of credible results. The people in the best position to build a solution (Programme Managers) were highly motivated to address this — also to give themselves confidence that they were moving in a good direction. So we addressed the question ‘what’s the best we can do’ in a highly participatory way, building a community of practice along the way, with evaluation experts, donors and practitioners. DCED donor members provided enthusiastic support, nudging programmes towards using the Standard. And the [DCED] Secretariat provided the packaging, event organisation and constant focal point.”
The Benefits of Standardising Technical Assistance Among DFIs
As Tanburn’s quote suggests, efforts to establish standardisation across multiple organisations and stakeholders do not start in a vacuum, and are not built from scratch. Fortunately, as mentioned above, the development finance sector has been laying the groundwork for standardisation for some time. And in recent years, several DFIs have made significant strides towards collaborative efforts and greater alignment, particularly when it comes to market-level interventions designed to address underlying barriers to deal flow.
A prime example of this is the Africa Resilience Investment Accelerator (ARIA), which brings together DFIs to unlock investment opportunities in frontier markets in Africa. For joint initiatives like ARIA, adopting a common standard to technical assistance would mean participating DFIs could spend less time negotiating details with their counterparts, improving the efficiency of the design and implementation of TA programmes. Smaller groups of DFIs are also making progress in seeking alignment, for example through Carbon Sink, one of the programmes under the EFSD+. Adoption of a DFI standard among these groups would enhance the quality and consistency of their TA design and delivery, easing the administrative burden on both the recipients and the TA team. It would also enable smaller DFIs to pool their resources and join larger initiatives, following pre-agreed rules.
Additionally, a common standard would significantly enhance DFIs’ ability to showcase the results of their TA, as these results could be measured more consistently across institutions. This would allow for comparison and the establishment of a solid evidence base for TA, fostering learning and the adjustment of strategies and approaches as needed.
Finally, adhering to principles and consistent methodologies as part of a standardised approach would lead to a clearer understanding and greater transparency regarding the allocation of TA funding by DFIs. This, in turn, would enhance comprehension of the impact that DFIs have on developing markets — not only among DFIs themselves, but also among impact investors and the broader public.
Maintaining a Flexible, Collaborative Process
However, for DFIs to maximise these benefits, it is important for them to think about how high-level TA principles are put into practice. For example, there might be widespread agreement among DFIs on the principle of additionality, but no consensus yet on how the potential for additionality is assessed pre-project, or measured during and after TA implementation. Guidance for implementing the shared principles could therefore be presented in a DFI TA “playbook,” created through a process led by larger DFIs and/or with the support of external consultants. This playbook could present guidelines on key topics, highlight different TA scenarios with corresponding decision-making frameworks, and deliver “reality checks” and other lessons from the field — while also providing streamlined tools and templates to support programme design, delivery and measurement. It could be updated periodically to include emerging best practices and new developments in the field, though this guidance should also be flexible enough to account for the unique needs of different organisations.
That last point is key, according to Alex Kucharski, Manager in BII Plus — British International Investment’s technical assistance facility: “It’s very easy to look from the perspective of your own organisation and impose your own approaches, requirements and even language related to TA. However, this can result in disjointed projects that don’t add up to much and become onerous for investees. Coming together between various DFIs (through, for example, an initiative like ARIA) and other partners under a common objective can make a bigger difference. It does, however, require prioritising a vision of collaboration, and compromising to make sure small details don’t get in the way.”
Any effort to develop a harmonised approach to DFI TA will have to contend with different institutional priorities, different levels of resourcing, and different contexts and needs. Reaching consensus on priority topics and how to apply them is likely to require a sustained effort, much like the active collaboration that occurred among DFIs and other development sector players during the height of the pandemic.
The process of achieving this consensus would require a balance between establishing a centralised set of uniform guidelines for all DFIs, and allowing for inherent differences between DFIs and their TA programmes. Considering the substantial overlap between existing sets of guiding principles at an organisational level, this process would not be starting from scratch. As a result, to gain broad acceptance, standardised TA principles must offer enough flexibility to accommodate the varying budget allocations, project types and geographical focuses among different institutions.
As DFI TA becomes more complex and ambitious, so does the challenge of aligning these institutions’ efforts to work towards common goals. A shared standard could serve as the blueprint for the next generation of technical assistance among these vital players in the global development sector. As both the scale and the need for DFI TA programmes continue to grow, it’s time to start this conversation.
Note: In late 2022, Boost Africa Technical Assistance Facility, a European Investment Bank initiative co-financed by the European Union and implemented by Adam Smith International, facilitated a series of conversations that aimed to support coordination efforts and the sharing of best practices between DFIs and development partners providing technical assistance to fund managers and the early-stage investment ecosystem in emerging economies, particularly in sub-Saharan Africa. This is the second article in a two-part series that shares key insights from participants in these conversations — the first article can be read here.
Photo courtesy of Charlotte May.