Policy expertise

MSME development in South Asia: evaluating the effectiveness of FMO support to financial intermediaries in Sri Lanka and India

Policy Area
Netherlands Development Finance Company (FMO)
OPM contact

This project has helped improve understanding of the effectiveness of Private Sector Development programmes that promote lending to micro, small and medium enterprises (MSMEs) through support to financial institutions/ intermediaries (FIs). To date, there has been a lack of evidence of the extent to which external financing of FIs actually enhances their ability to successfully expand their lending to MSMEs. In partnership with MicroSave, we conducted an independent evaluation of the MASSIF programme which provides financing to a range of FIs including banks (with an SME focus), microfinance institutions and small enterprise investment funds. The MASSIF programme is funded by the Dutch government and implemented by the Netherlands Development Finance Company (FMO). Our team assessed support to eight FIs across Sri Lanka and India, adopting a theory-based approach to assess the outputs of projects against their stated objectives. Extensive literature and documentation reviews were complemented by data collection, key informant interviews and focus group discussions to undertake theory-of-change analysis. The different projects were given a qualitative score based on the evaluation criterion of relevance and effectiveness. The team also assessed the potential for future evaluability of project outcomes and impacts at the MSME level and made recommendations for further work in the area.

A number of private sector development programmes are based on the premise that providing funding to FIs will in turn increase their lending and result in improved outcomes for their clients (e.g. MSMEs). However, to date, there is little direct evidence in the area and especially the extent to which external financing of the FIs enhances their ability to successfully expand their lending to MSMEs.

FMO commissioned this study to address this knowledge and evidence gap in the context of FMO’s support to FIs through the MASSIF programme. The MASSIF fund provides equity, subordinated loans and medium to long-term credit to banks, microfinance institutions, small enterprise investment funds and other non-bank financial institutions.

In partnership with MicroSave, we were selected to conduct an independent evaluation of the MASSIF programme to assess how effectively it is meeting its aims – specifically, increasing the ability of intermediaries to expand and improve the financial services they offer their clients as well as strengthening the governance capacity and social and environmental responsibilities of these institutions.


Our expert team carried out detailed, independent assessments of a selection of MASSIF-supported financial institutions in Sri Lanka and India. The eight institutions were chosen to give a representative cross-section of the fund’s portfolio and to provide the opportunity to draw lessons learnt from a small number of detailed case studies.

The team adopted a theory-based approach to the evaluations, mapping out the objectives of each project and assessing whether the intended outputs - including growth of MSME lending and institutional strengthening - had been achieved as well as whether these have occurred based on the causes assumed. Both primary and secondary research methods were employed, including documentation and literature reviews and in-field data collection, key informant interviews and focus group discussions. Each project intervention was given a qualitative score based on the evaluation criteria of effectiveness and relevance and where possible, the team also considered the issue of institutional sustainability as an evaluation criterion.

In addition, the potential for evaluating the outcomes and impacts of the project interventions at the beneficiary level was assessed and the team made a number of strategic recommendations for possible follow-up work.

Specific activities undertaken by the team included:

  • Conducting extensive literature and documentation reviews to map out theory of change and project objectives
  • Developing evaluation design matrices identifying assessment questions, relevant indicators and ways of measuring them
  • Conducting mixed-methods research including theory of change analysis, key informant interviews, quantitative data analysis and focus group discussions
  • Completing qualitative data analysis and interpretation and developing project case studies

This project has provided valuable insights into the performance of the FMO’s private sector development programme in South Asia. Our evaluation has improved understanding of the effect that providing finance to financial intermediaries has on their ability to expand and improve their lending to MSMEs. In turn, this evidence can be used to inform further roll-out of the MASSIF programme to help ensure its continued relevance and effectiveness in line with the wider aims of supporting entrepreneurs and consumers at the lower-end of the financial market.

Economic Policy Programme Director
Associate Consultant
Associate Consultant