International development and finance

Evaluation of Finnfund: The Finnish Fund for Industrial Cooperation Ltd.

Finnfund is a bilateral development finance institution (DFI) which provides finance to firms in developing countries, to promote social, environmental and economic development. This evaluation of Finnfund was led by Just Economics staff. It was commissioned by the Finnish Ministry of Foreign Affairs and conducted in partnership with Partcip GmbH. 

The goals of this evaluation were to assess Finnfund’s historical performance, the extent to which it has followed its mandate and annual guidance, and the likelihood that the 2018-2025 strategy will achieve its objectives. Phase 1 reviewed Finnfund’s record on development impact, and alignment with its mandate. Phase 2 appraised the future strategy based on fieldwork in three countries in Latin America and Africa.

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In the ex-post study, the evaluation found that Finnfund was broadly consistent with annual guidance and best practice in both commercial and environmental/social risk management, and often exceeded these.

While it is not possible to assess causality, we find evidence of job creation on the part of investees, as well as improved business performance. Findings on taxation are inconclusive. Finnfund’s country and sector allocations also suggest that impacts are being achieved, if not always captured. On additionality, we find that Finnfund’s investments are most likely to be additional in forestry and agriculture. 

The fieldwork found some evidence for positive outcomes in areas such as capacity development, business performance, the scale and quality of employment, and community and environmental impacts. We cannot
generalise from this to the portfolio, however, due to the small sample size. The evaluation finds that the goal of tripling impact is only possible if the trend towards high impact countries and sectors continues, but that this is likely to increase risks and lower returns. Ensuring that Finnfund expands in a way that is compatible with this is essential. We set out a number of ways this could be done, which entail different combinations of public and private investment, and potential changes in key areas such as Finnfund’s return requirements. Finally, to increase impact on the scale required, Finnfund needs a greater on-the-ground presence in the countries in which it operates, and to engage closely with investees to better performance. Just as importantly, impacts need to be robustly measured and reported. Finnfund needs the support of public opinion in Finland, providing credible evidence of impact, and engaging actively in development policy circles, is key to this.

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