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4 Ways Public Development Banks Can Digitize Their Financing Solutions

By Guest Writer on March 4, 2021

african public development bank

Public Development Banks (PDB) exist in most countries. They play a critical role in financing economic activities that private sector commercial banks are unwilling and/or unable to finance. This includes small business, infrastructure, trade, or other social and development objectives in emerging markets (as well as many developed ones).

These public sector entities (sometimes public-private partnerships [PPPs]) generally operate with a dual mandate — commercial returns and social impact.

Development Banks and Digital Financial Services

In current times, as digital financial services evolve, and citizens begin to place higher expectations on governments to keep up with the internet age, and COVID-19 has exposed frailties in analog institutions across the world, I’ve been thinking about the role public development banks play in delivering impact and value to increasingly digital societies.

The last World Bank survey of development banks made a fleeting comment: “more recently, development banks are being established to finance green projects and accelerate adoption of the digital economy.”

Yet, I’ve seen little discussion of development banks involved in digital. So I talked to Abiodun Ijaware, Head of IT at the Development Bank of Nigeria. He and I discussed:

  • How should a PDB improve access and delivery of financial services in a digital age?
  • How can a PDB stay on the front foot of digitalisation?

4 Ways Public Development Banks Can Digitize

1. Get your house in order.

It sounds common sense, but if a development bank wants to contribute to creating a strong digital economy, it first needs to be a digital organisation itself.

Younger PDBs have the advantage of birth within the internet-age. The Development Bank of Nigeria (DBN), for example, began operations in 2018. It started with digital in mind, allowing it to adopt data technologies, cloud services and lay a strong foundation for digital growth.  It has avoided painful departure from old IT infrastructure or manual processes.

Alongside its 2018 Corporate Strategic Plan, DBN created a specific digital strategy with three tiers:

  • Objectives and plans for internal digitalisation;
  • The way it employs digitalisation to relate with vendors and other financial institutions that it partners with for lending;
  • How it impacts target constituencies (micro-small and medium enterprises) through digital services.

However, many PDBs are much older (35% surveyed by the World Bank were established between 1945 and 1979.) Too often these institutions rely on siloed (and often outdated) software solutions and cumbersome manual processes. Others seem to feel they have achieved their pinnacle of digitalisation by having a website and a portion of staff communicating via email.

To serve a smartphone generation and digitally active citizens, these PDBs first need to undergo a digital transformation internally. Many commercial banks have made this transition; PDBs can learn from them. I liked what the Center for Financial Inclusion writes as “breaking” traditional rules which no longer work in an internet era; this means questioning the way things are handled from citizens or partners’ perspectives.

The Development Bank of Nigeria has aimed to be ‘asset-light’. For older, big IT-system riddled development banks becoming a digital institution may involve as much shedding of systems, vendors, and processes as it does building new digital infrastructure.

Starting with digital strategy, working to build internal human capacity, partnering to find the right applications and solutions, and automating foundational internal processes as much as possible are key.

2. Understand primary ‘users’ and improve their UI.

Many PDBs are ‘Tier 2 lenders’. This means they distribute loans through other ‘participating’ financial institutions (PFI) — usually local microfinance institutions, commercial banks, money unions etc.

This has derisking benefits as well as opportunities for the PDB to expand its reach by leveraging local commercial banks’ existing branch networks to serve the needs of target beneficiary citizens (micro and small businesses in the case of the Development Bank of Nigeria, for example). The local banks [or PFIs] are customer facing; they undertake customer due diligence and deliver the financial service.

Tier 1 PDBs, on the other hand, lend directly to citizens, project sponsors, businesses, etc. (and some PDBs are mixed Tier 1 and 2 lenders).

The direct or primary users of a PDB’s services matter. This subtle difference between Tier 1 and Tier 2 users will mean the goals, questions asked, user pain points, and subsequent prioritisation of digitalisation and internal process reform will diverge between Tier 1 and Tier 2 lenders.

Citizens are extremely important to both Tier 1 and 2 PDBs. But Tier 2 cannot serve general citizens best until it serves its partner participating financial institutions (PFIs) well. This means thinking through the digital interface and processes that partner PFIs experience for them to apply for, disburse, and monitor/report on funds.

Of course, the process of understanding users’ needs—be they direct citizen borrowers or other financial institutions — is not dissimilar. Clarity in objectives and desired change is critical. Will digitalisation provide… easier? clearer? faster? more transparent and seamless?portfolio monitoring? Loan disbursements? Approvals? Due diligence records? Reporting?

Finally, as small improvements in users’ needs snowball, a PDB can look further outward to impacts in the wider economy. For example, the Development Bank of Nigeria has prioritised collecting and using data well. At first it focused on data for performance and customer service improvements, but as it grows in its customer base and accumulation of valuable data it is increasingly able to draw on key data points to contribute policy or macroeconomic insights.

3. Help businesses develop digital skills

Many PDBs offer training programs to help new businesses get off their feet. Programs might include business planning, accounting and financial management, marketing and etc. Recently, the Development Bank of Jamaica, which runs a  voucher program for technical assistance, released a ‘digital transformation’ voucher allowing eligible borrowers to access business support services targeted at improving borrowers’ online/digital capabilities.

Technology and digital applications can enable wide-spread and lower-cost distribution of business training programs (even youtube for example).  The Development Bank of Nigeria has taken this approach. Its mandate is to focus on micro, small and medium enterprises (MSMEs) and improve their access to finance.

To this end, it has released a mobile app which, among other features, offers training videos aimed at improving the business skills of current and prospective MSME borrowers — ultimately improving their ‘bankability’ (their likelihood of repaying credit and attractiveness to lenders).

In some contexts, particularly remote areas, citizens can be unfamiliar with digital financial services. These citizens are at risk of being increasingly left-behind and disconnected as more trade, communication, and business moves online. Gaps can also exist between mobile phone literacy vs computer literacy (vs actual capability to navigate web browsers).

While the use and distribution of mobile and smartphones have surged in emerging markets, having a mobile phone doesn’t equate to being able to navigate a web browser/app (most people use the camera, Facebook and texting and not much else) and laptop usage in many developing nations remains low.

As the world progresses further into digital and particularly in light of Covid-19, PDBs have a role to play in promoting digital skills and digital financial literacy within their TA programs. This requires understanding the digital literacy of end constituents and differentiating tactics across different digital/technology interfaces.

4. Use policy to contribute to a stronger digital ecosystem

Development banks sit at the nexus of policy, financial markets, and economic development. Usually their board members include members of government. Staff, particularly executives, can be porous between government and commercial banking.

They are often an independent agency under a key ministry e.g of finance, agriculture, trade etc. They are usually not regulated like a commercial bank, but often have close relationships with regulatory authorities while existing under an independent legislative act.

These attributes together mean that PDBs occupy a unique policy position. They have the opportunity to sit at a policy table and advocate for the betterment of financial services, and regulations that improve economic development and financial inclusion.

In this way, as digital standards and regulation are nascent in many contexts, development banks have the opportunity to relay the needs of citizens and the financial industry to policy makers to see innovation and inclusive digital transformation occur.

By example, countries that adopt proportionate, risk-based tiered know-your-customer regulations (KYC), that allow the opening of small accounts without the requirements imposed on larger accounts, have shown to broaden access to financial services and financial inclusion in general. Development banks are well positioned to advocate for this kind of Fintech enabling regulation.


Development banks have an opportunity to increase financial inclusion and contribute to a broader digital financial ecosystem. They can foster venture capital for digital/ tech innovation, offer direct financial support or training to MSMEs, and/or partner with existing telecommunications or fintech providers and financial institutions.

Applying a market systems approach (a concept advanced by CGAP) requires PDBs (and other funders) to understand the market system more deeply, taking into account the interplay of different market actors and the functions they perform (or fail to perform) in the system.

As PDBs move towards providing digital financial products they need to be easily accessible and understandable for citizens. Interconnected and interoperable financial ecosystems can help provide citizens better access to financial products and services.

Development banks are important actors in facilitating development outcomes in numerous countries around the world. These institutions have an important role to play in helping citizens access finance and conduct business in a digital era. However, development banks must first build their digital capacity to keep pace with an increasingly digital financial system before they can ultimately improve it.

By Jenni Henderson, Director, at August Group

Filed Under: Finance
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