Donor Innovation in Financial System Development: DFID's Design of FinMark Trust in South Africa

In order to create better financial systems for the poor in South Africa, DFID and the Banking Council of South Africa (BCSA) created FinMark Trust, a local organization:

• The Trust was legally allowed to begin projects that helped integrate microfinance into mainstream financial services;
• FinMark Trust is both a technical assistance and finance provider for strategic projects.

FinMark Trust was only established in 2002, and its significance is borne out of its structure, flexibility, and financing. A change in focus for DFID allowed FinMark Trust to be established:

• DFID realized that limited access to financial services hindered the growth of small enterprises. It, therefore, began a new approach, concentrating on factors that constrained the growth of microfinance;
• DFID's focus shifted from supporting individual projects to focusing on high-level policy projects. Policies were aimed at issues such as infrastructure, supporting legislation, local technical capacity.

The structure of FinMark Trust is the following:

• FinMark's mission is to ensure that it provides demand-driven financial services to the poor;
• It attracts private-sector funding by developing institutional, organizational, and support infrastructure. It has the ability to focus on all three of these areas simultaneously;
• It received a GBP £5 million grant from DFID. Various other donors collaborate with FinMark on an individual basis. The Trust is not expected to become self-sustainable, but to help create a sustainable financial services sector;
• Superior local people were recruited for staffing.

FinMark has been relatively successful in its first few years of operations due to:

• Partnering with local institutions;
• Focusing on good microfinance practice;
• Creating flexible funding mechanisms.