minimizing their unintended consequences while at the same time promoting private financial market activity.

However, if programs are well designed to reach their target, and if there is the institutional capacity to implement the project and avoid political capture, they can have an equalizing effect. This was demonstrated with both the Enterprise Development Program and the activities of the marketing board in Zambia.

Despite the widespread acknowledgment of the failure as a sustainable of Lines of Credit as means of increasing access, the Enterprise Development Project in Zambia EDP may be an example of how financial intermediary lending can have a positive impact in terms of providing scarce medium term lending for investment and export production to small and medium sized enterprises.<sup>11</sup> Under this project, the funds were channeled through Bank of Zambia, but measures were put in place to strengthen Bank of Zambia’s capacity to monitor the on-lending and successfully resist political pressures to capture the funds. In addition, the facility allowed local banks to freely decide on-lending rates, thereby allowing competition between banks receiving funds from the project.<sup>12</sup>

# **3.2 New instruments attempt to reconcile equity with efficiency**

Soft and hard commands on providers can work, but they must be designed realistically and flexibly, to allow the private sector to choose the most efficient and sustainable means of extending access. In South Africa, in response to government “moral suasion”, the representatives of the financial services industry signed the Financial Sector Charter in 2003 in which they undertook to increase the number of poorer people (LSM1-5) with a bank account from 32% to 80% in 2008. In order to achieve this goal the key players in the sector have collaborated to design the Mzansi account, which offers fewer services, but with cheaper charges on transactions, such as cash deposits and ATM withdrawals. The product has been highly successful with 180,000 new customers in the first six weeks. Thus, government pressure has pushed banks to innovate and to engineer a product which allows downscaling to be sustainable and even profitable. This example underlines that allowing banks to decide on the extent, process and technology of the expansion not only avoided conflict with the regulator, but also resulted in the kind of innovation and sector wide coordination necessary to achieve the set objective.

# **3.3 Access to financial services might be better attained by exploiting the synergies between services sectors in order to increase the likelihood of achieving access goals**

Given that banks have found it a challenge to move profitably downscale because of the nature of demand in poorer and rural areas, which is small in scale, but transaction intensive, there has been a move in many countries towards “correspondent banking” as a way to broaden the range of delivery points and allow for small scale banking. Banks

> 11 OED Review of Bank Lending for Lines of Credit, May 6 2004, iii

> 12 Implementation Completion Report on a Credit for an Enterprise Development Project, The World Bank, December 2003.

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