Looking Ahead - Opportunities for Public Private Partnerships (PPP) in Financial Development in Southeast Europe

Can public private partnerships succeed in financial sector development?
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This paper discusses the advantages and disadvantages of public private partnerships (PPPs) and questions their feasibility in the area of financial sector development. It defines the PPP as an arrangement, wherein private capital, management and possibly ownership, are used to provide what are typically known as public services.

As per the authors, some of the difficulties that a PPP faces are:

  • Decision regarding ownership and decision-making rights;
  • Evaluation of the performance of the private party.

The paper states that PPPs would be successful if:

  • The partnerships are based on trust and commitment;
  • Corporate governance procedures and the right to terminate the contract limit behavior that is not in the common interest;
  • Ownership and decision making rights are specified and incentives are given for good performance.

The paper observes that in the area of financial development, PPPs can function successfully in the microfinance sector and in the funding of small and medium enterprises (SMEs).

This is because:

  • The state lacks the expertise and funds required for SME funding;
  • SME banks are costly to set up and therefore require private funding.

The paper concludes that despite difficulties, public and private parties should try to establish partnerships in financial development, with the private party being the leader and the owner. It also presents a case study of a PPP called IMI that confirms its conclusions.

About this Publication

By Schmidt, R. & Moisa, N.